Will Archer Daniels’ Growth Efforts Help Sustain Momentum? – April 11, 2017

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Archer-Daniels-Midland Company (ADM Free Report) has been undertaking steps to manage its business portfolio and enhancing its global footprint to sustain momentum. Shares of this Zacks Rank #3 (Hold) company have outperformed the Zacks categorized Consumer Staples sector in the past year. While the stock returned 22.2%, the broader sector gained 2.8%.


Growth Drivers

Archer Daniels manages its business portfolio through strategic initiatives. Recent actions include expanding its presence in the Western Europe with the acquisition of Chamtor; enhancing footprint in the Animal Nutrition space, particularly marking its entry into the growing Chinese high value specialty aquafeed market; to sell its Crop Risk Services (“CRS”) insurance operations; buyout of Crosswind Industries Inc.; and enhancing production capacity along with expansion of the finishing capabilities of its corn wet mills at Adana in Turkey and Razgrad in Bulgaria. We believe these measures are likely to solidify the company’s portfolio.

We believe Archer Daniels is progressing well with its cost-saving initiatives, which is a key component of its long-term strategy. Moving ahead, it targets $550 million in additional run rate cost savings over the next five years, including cost savings of $350 million from operational excellence and process enhancements, and about $200 million in incremental purchasing savings. Notably, the company exceeded its run-rate savings target of $275 million in 2016 on the back of its strategic efforts.

Additionally, the company has been continuing with its investment activities for business growth. With regard to this, it shifted from domestic projects – where returns are difficult to model – to international projects that can be tracked more easily and will be accretive at a faster pace.

Hurdles/Concerns

However, the company’s earnings have missed the Zacks Consensus Estimate in six of the trailing seven quarters. Also, the Zacks Consensus Estimate of $2.77 for 2017 has declined 2 cents over the last 30 days.

Furthermore, Archer Daniels’ financial performance may be adversely affected due to its significant presence in the international market which exposes it to unfavorable foreign currency translations. It should also be noted that stiff competition and volatility in commodity prices remain concerns for the company, going forward.

Bottom Line

Nevertheless, Archer Daniels remains confident of delivering solid results in 2017 backed by its constant buyouts, efficient portfolio management and organic growth projects along with improved market conditions. Also, its VGM Score of “A” and a long-term earnings growth rate of 20.3% boost confidence in the stock.

Key Picks

Better-ranked stocks in the Consumer Staples sector include Ollie’s Bargain Outlet Holdings, Inc. (OLLI Free Report) , Limoneira Co. (LMNR Free Report) and Blue Buffalo Pet Products, Inc. (BUFF Free Report) .

Ollie’s Bargain Outlet, with a long-term earnings growth rate of 17.1% has surged 31.9% in the past year. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Limoneira, which carries a Zacks Rank #2 (Buy), has increased 31.2% in the past year. Also, it has a long-term earnings growth rate of 15%.

Blue Buffalo Pet Products, a Zacks Rank #2 stock, has a long-term earnings growth rate of 13%.

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Source: einnews.com