We have retained our Neutral stance on
Archer Daniels Midland Co.
). The company's strong quarterly performance and
continuous focus on enhancing its processing capabilities and
global footprint are its strengths. However, we remain on the
sidelines due to the projected rise in raw material prices in the
near-term and expected decline in demand for corn-based ethanol.
Why the Reiteration?
Archer Daniels is one of the leading players in the global food
processing industry and commands a massive network of more than
680 processing and sourcing facilities and 27,000 vehicles
operating across the Americas, Europe and Asia for transportation
of agricultural commodities. This provides a strong competitive
advantage to the company and strengthens its well-established
position in the market.
Archer Daniels posted strong results for the quarter ended Dec
31, 2012, as adjusted earnings of 60 cents per share rose 17.6%
from the year-ago quarter earnings of $0.51 per share. Net sales
of $24,921 million improved 6.9% year over year mainly driven by
robust performances at Oilseeds and Agricultural Services
segments, partially offset by weak results at the company's Corn
Moreover, Archer Daniels remains extensively focused on enhancing
its processing capacities, which includes expanding crushing
capacities in North America, and fertilizer blending and
biodiesel capacities in South America. In Europe, the company has
acquired processing facilities in Czech Republic and Germany and
3 storing facilities in Slovakia. Further, the company is in
talks to acquire GrainCorp, aiming to boost its market share in
In addition, in order to tap the growing global demand for crops
and agricultural products, Archer Daniels is expanding its global
footprint in the emerging markets, especially Asia. These
initiatives offer a strong upside potential to the company in the
However, we remain slightly cautious on the stock as we believe
that the company's margins may shrink further in the near-term
due to rising oilseeds and corn prices resulting from weak
agricultural produce in the U.S. Further, U.S. has imported
higher sugar-based ethanol from Brazil to meet the growing demand
of ethanol, which may adversely affect the demand for Archer
Daniels' corn-based ethanol.
Other Stocks to Consider
Besides Archer Daniels, which holds a Zacks Rank #3 (Hold), other
stocks worth considering in the Farm products industry are
ConAgra Foods Inc.
Flowers Foods Inc.
J&J Snack Foods Corp.
), all of which hold a Zacks Rank #1 (Strong Buy).
ARCHER DANIELS (ADM): Free Stock Analysis
CONAGRA FOODS (CAG): Free Stock Analysis
FLOWERS FOODS (FLO): Free Stock Analysis
J&J SNACK FOODS (JJSF): Free Stock Analysis
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