We have maintained our long-term Neutral recommendation on the
world's leading food processing company,
Archer Daniels Midland Company
) with a target price of $36.00, following its
weaker-than-expected first-quarter 2013 results, offset by
positivity surrounding the recent bid to acquire GrainCorp.
Moreover, shares of Archer Daniels carry a Zacks Rank #3 (Hold).
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.
We believe that Archer Daniels' consistent focus on enhancing its
processing capabilities and global footprints through strategic
acquisitions and joint ventures (JV) bode well for future growth.
This was evident from its recent success in wooing Australia's
agri-products dealer, GrainCorp Limited. The company recently
entered into an agreement to acquire GrainCorp, approving to pay
A$12.20 per share in cash with the aggregate transaction value
amounting to $3.4 billion.
Archer Daniels interest in acquiring GrainCorp is in sync with
its growth strategy, as it will not only fortify its financial
position but provide an opportunity to serve the fast-growing
markets in the Middle East, Africa and Asia.
On the flip side, the company posted weaker-than-expected results
in the recently concluded quarter with sales and earnings coming
below the Zacks Consensus Estimate. The company's results
suffered mainly due to weak performance at its operating
segments. The company's operating margins slumped due to weak
operating performance at the Agricultural Services and Oilseeds
Nevertheless, our cautioun over the stock's performance relates
to the anticipated rise in prices of raw materials in the near
term, resulting from the weak agricultural produce in the U.S.,
which may ultimately hurt the company's margins.
Other Stocks to Consider
Until any further upward revision in Archer Daniels' Zacks Rank,
other stocks in the farm products industry that are worth
Flowers Foods Inc.
Campbell Soup Company
J&J Snack Foods Corp.
). Of these, Flowers Foods has a Zacks Rank #1 (Strong Buy),
while Campbell and J&J Snack carry a Zacks Rank #2 (Buy).
ARCHER DANIELS (ADM): Free Stock Analysis
CAMPBELL SOUP (CPB): Free Stock Analysis
FLOWERS FOODS (FLO): Free Stock Analysis
J&J SNACK FOODS (JJSF): Free Stock Analysis
To read this article on Zacks.com click here.