Is Archer-Daniels-Midland a Buy at Its All-Time High?

I have uncovered the risk-reward for Archer-Daniels-Midland Co. (NYSE:ADM) pretty eye-catching for some time now. In addition, the organization also has an extremely lengthy dividend expansion streak and offers a marketplace-beating generate.

But just after hitting an all-time significant, is Archer-Daniels-Midland nonetheless a purchase these days? Let us look at the company’s new quarter and the inventory valuation to identify that solution.

Earnings highlights

Archer-Daniels-Midland reported fourth-quarter and whole-yr earnings effects on Jan. 26. For the quarter, revenue grew 10.1{2e54b6599e2852fcddcb96c51aef71201c0435684ebd8fbda55b4c693aab2644} to $18 billion. This was $1.5 billion previously mentioned Wall Road analysts’ estimates. Modified earnings per share declined 14.8{2e54b6599e2852fcddcb96c51aef71201c0435684ebd8fbda55b4c693aab2644} to $1.21, but was 12 cents far better than anticipated.

For the yr, income fell .5{2e54b6599e2852fcddcb96c51aef71201c0435684ebd8fbda55b4c693aab2644} to $64.4 billion, although adjusted earnings per share elevated 10.8{2e54b6599e2852fcddcb96c51aef71201c0435684ebd8fbda55b4c693aab2644} to $3.59, a new history.

All reportable business segments demonstrated operating gain growth in the fourth quarter.

Agricultural Companies and Oilseeds grew virtually 13{2e54b6599e2852fcddcb96c51aef71201c0435684ebd8fbda55b4c693aab2644} to $1.1 billion. Ag Services remains strong, especially in North America, which benefited from better global demand, specially in China. Ag Services had bigger export volumes and an improvement in margins. South The usa was lower 12 months more than 12 months, but this is primarily owing to advanced income in the 1st 50 {2e54b6599e2852fcddcb96c51aef71201c0435684ebd8fbda55b4c693aab2644} of 2020 as international locations accelerated orders as a consequence of the Covid-19 pandemic.

The Crushing business expert a in close proximity to triple in working earnings as it benefited from greater need for food and vegetable oils. A lower world-wide source of soybeans was also a tailwind. Margins had been up in all areas. Excluding a retroactive biodiesel tax credit history in the fourth quarter of 2019, revenue for Refined Items was up yr more than 12 months due to gains in South American markets.

Functioning financial gain for the Carbohydrates Options segment was 19.5{2e54b6599e2852fcddcb96c51aef71201c0435684ebd8fbda55b4c693aab2644} increased at $208 million. Lessen expenditures for corn aided Starches and Sweeteners develop when compared to the prior year, while corn oil and wet mill ethanol ended up both equally weaker. Vantage Corn Processors carries on to meet need for large-quality alcoholic beverages. Archer-Daniels-Midland has idled two dry mills employed for ethanol output, which lessened final results a bit due to linked set fees.

Nutrition was the genuine star of the quarter as working revenue improved 24.5{2e54b6599e2852fcddcb96c51aef71201c0435684ebd8fbda55b4c693aab2644} to $127 million. This marks this segment’s sixth consecutive quarter of at least 20{2e54b6599e2852fcddcb96c51aef71201c0435684ebd8fbda55b4c693aab2644} running gain development. Human Nourishment expert greater all round gross sales and solution mix in both equally the North American and Europe, Center East, Africa and India locations. Flavors was the most important catalyst for growth, but plant proteins, probiotics, organic well being and nutrition all continue to clearly show power. Animal Diet grew in Asia and EMEAI, but faced currency exchange-linked headwinds in Latin America.

Archer-Daniels-Midland ended 2020 with overall property of $49.7 billion, latest assets of $27.3 billion and dollars and hard cash equivalents of $666 million. This compares to complete liabilities of nearly $30 billion and present liabilities of $18.2 billion. Whole financial debt stands at just more than $11 billion, with $2 billion of debt due within the next yr.

Archer-Daniels-Midland expects to deliver adjusted earnings for each share development in 2021. Consensus estimates call for $3.85 of modified earnings for every share for the existing calendar year, which would signify a 7.2{2e54b6599e2852fcddcb96c51aef71201c0435684ebd8fbda55b4c693aab2644} raise from previous year’s history amount.

The business also increased its dividend 2.8{2e54b6599e2852fcddcb96c51aef71201c0435684ebd8fbda55b4c693aab2644} for the March 2 distribution, somewhat beneath the five-12 months compound once-a-year growth level of 3.7{2e54b6599e2852fcddcb96c51aef71201c0435684ebd8fbda55b4c693aab2644}. Archer-Daniels-Midland has now elevated its dividend for 46 consecutive decades, qualifying the enterprise as a member of the Dividend Aristocrat index. Shares generate 2.6{2e54b6599e2852fcddcb96c51aef71201c0435684ebd8fbda55b4c693aab2644} as of Friday’s shut, considerably greater than the 1.5{2e54b6599e2852fcddcb96c51aef71201c0435684ebd8fbda55b4c693aab2644} common yield for the S&P 500 index.

Valuation assessment

Enhancements in the company’s business and lengthy background of dividend expansion were being two items that originally drew my focus to Archer-Daniels-Midland final 12 months.

The other was valuation. When I last discussed the food processing organization again in September, I felt the inventory had the prospective to offer a mid-single-digit return. Considering the fact that this time, however, shares are better by more than 25{2e54b6599e2852fcddcb96c51aef71201c0435684ebd8fbda55b4c693aab2644}.

This has prompted the valuation to climb larger. Employing the most latest closing price of $57.59 and predicted modified earnings for each share for 2021, Archer-Daniels-Midland has a ahead rate-earnings ratio of 15. This matches the stock’s 10-12 months normal earnings several according to Worth Line.

In addition, shares of the corporation now trade at a considerable premium to its GF Worth.


Archer-Daniels-Midland has a GF Worth of $45.03, which success in a value-to-GF Price of 1.28. This earns the stock a ranking of modestly overvalued from GuruFocus. Returning to the GF Value would outcome in a 22{2e54b6599e2852fcddcb96c51aef71201c0435684ebd8fbda55b4c693aab2644} lessen in share rate, which would erase almost all of the gains witnessed in the name given that early September.

Ultimate feelings

There is a ton to like about Archer-Daniels-Midland. The company’s business carries on to thrive, with all major segments putting up growth in the most the latest quarter. Even challenges such as forex or considerably less demand in specific corporations wasn’t plenty of to offset the main locations of the organization.

Archer-Daniels-Midland has an exceptional record of returning funds to shareholders by its dividend and the produce is a complete proportion stage much better than what the market gives.

That stated, my envisioned obtain in share cost because my past dialogue of the firm has extra than appear to fruition. As a lot as I like the firm, Archer-Daniels-Midland’s valuation is no lengthier as desirable at it was. Consequently, I am relocating to the sidelines on the stock and now charge it as a hold. On a pullback, the stock could be an outstanding financial commitment for money-in search of investors.

Disclosure: The author has no placement in Archer-Daniels-Midland.

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About the creator:

Nathan Parsh

I am initially from the Detroit, Michigan region, prior to relocating to Maryland to begin a vocation as an educator. This is my 15th yr instructing. My wife and I have two young little ones who hold us on our toes.