Some projections estimate the worldwide demand for food will double by 2050, which should spur demand for this stock’s products and services.
While success in the agricultural business depends on many changeable factors such as weather and commodity prices, this company has a long history of rising profits—and 85 years of dividend payments.
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ARCHER DANIELS MIDLAND CO. (New York symbol ADM; www.adm.com) processes corn, wheat, soybeans, canola, and other crops to make a variety of food ingredients such as flour, oils and sweeteners. It also makes ethanol from corn.
In the first nine months of 2017, Archer Daniels completed three acquisitions for a total of $187 million. Those included Crosswind Industries, Inc., a Kansas private-label manufacturer of pet treats and foods. The deal enhances Archer Daniels’ animal nutrition business.
In December 2017, the company agreed to sell its Bolivian oilseeds operations to Inversiones Piuranas S.A. That business processes soybeans and sunflower seeds into oils and protein meal.
In the three months ended December 31, 2017, Archer Daniels’ revenue fell 2.6%, to $16.1 billion from $16.5 billion a year earlier. That missed the consensus forecast of $16.7 billion. Lower revenue from its agricultural services business (including transporting and trading crops) offset gains from processing corn and oilseeds.
If you exclude a gain related to U.S. tax reforms and other unusual items, earnings in the quarter rose 9.3%, to $0.82 a share from $0.75. That easily beat the consensus estimate of $0.70.
Archer Daniels Midland has also been linked with two other possible takeovers, although it has declined to confirm either of them.
The company may be planning to launch a takeover offer for Bunge Ltd. (New York symbol BG). Bunge is a leading processor of soybeans and oilseeds. It also makes vegetable oil.
Buying Bunge would cost roughly $15 billion. To put that in context, Archer Daniels’ market cap (the total value of all outstanding shares) is $24.4 billion.
A merger would probably face strong anti-trust hurdles, as it would reduce the number of major agricultural processing firms from four to three. However, buying Bunge would let Archer Daniels cut its operating costs. That would help it better cope with erratic crop prices. The company could also sell some of Bunge’s North American operations to win regulatory approval.
Earlier, the company denied media reports that it was planning to acquire the spreads division of Unilever plc (New York symbol UL). Its operations make margarine and related products under several brands, including Flora, Stork and I Can’t Believe It’s Not Butter. Unilever has now entered a binding deal to sell the business to U.S. private equity firm KKR for 6.83 billion euros.
While that type of consumer products business is more profitable than Archer’s main grain trading and processing operations, the steep selling price is roughly a third of Archer Daniel Midland’s market cap.
The company will probably earn $2.80 a share in 2018, and the stock trades at a moderate 15.0 times that estimate.
Recommendation in TSI Dividend Advisor:Archer Daniels Midland is a buy.
Hi. With so many stocks being recommended as a buy, I find it difficult to choose. When I look at a recommendation I look at it’s 1yr, 2yr, 3yr, 5yr and 10yr performance (dividend adjusted price) and compare to other stocks I hold or recommendations you and others make. Many stocks recommended (including ADM) don’t seem to have very good historical performance. Can you tell me why you don’t seem to see historical performance as important? I am a subscriber to “TSI Dividend Advisor”.
Thanks, Leon. Yes, it’s a great deal of information that we review and analyze before deciding on a stock recommendation. We do the same thing every time we re-examine a stock to update its performance. Our TSI Rating system outlines the key data we look at for each assessment. You may be less familiar with our dividend focused rating system. Please see details below. Hope that helps.
Our TSI Dividend Sustainability Rating System awards points to a stock based on key factors:
• One point for five years of continuous dividend payments – two points for more than five;
• Two points if it has raised the payment in the past five years;
• One point for management’s commitment to dividends;
• One point for operating in non-cyclical industries;
• One point for limited exposure to foreign currency rates and freedom from political interference;
• Two points for a strong balance sheet, including manageable debt and adequate cash;
• Two points for a long-term record of positive earnings and cash flow to cover dividends;
• One point if the company’s an industry leader.
Companies with 10 to 12 points have the most-secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.
Hi Pat! How would Archer Daniels Midland compare to AGT Foods and Ingredients? Their businesses look similar but AGT has been hammered in the last year… Would like to invest in crops. Thanks!
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Hi. With so many stocks being recommended as a buy, I find it difficult to choose. When I look at a recommendation I look at it’s 1yr, 2yr, 3yr, 5yr and 10yr performance (dividend adjusted price) and compare to other stocks I hold or recommendations you and others make. Many stocks recommended (including ADM) don’t seem to have very good historical performance. Can you tell me why you don’t seem to see historical performance as important? I am a subscriber to “TSI Dividend Advisor”.
Thanks,
Leon Mitchell
Thanks, Leon. Yes, it’s a great deal of information that we review and analyze before deciding on a stock recommendation. We do the same thing every time we re-examine a stock to update its performance. Our TSI Rating system outlines the key data we look at for each assessment. You may be less familiar with our dividend focused rating system. Please see details below. Hope that helps.
Our TSI Dividend Sustainability Rating System awards points to a stock based on key factors:
• One point for five years of continuous dividend payments – two points for more than five;
• Two points if it has raised the payment in the past five years;
• One point for management’s commitment to dividends;
• One point for operating in non-cyclical industries;
• One point for limited exposure to foreign currency rates and freedom from political interference;
• Two points for a strong balance sheet, including manageable debt and adequate cash;
• Two points for a long-term record of positive earnings and cash flow to cover dividends;
• One point if the company’s an industry leader.
Companies with 10 to 12 points have the most-secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.
Hi Pat! How would Archer Daniels Midland compare to AGT Foods and Ingredients? Their businesses look similar but AGT has been hammered in the last year… Would like to invest in crops. Thanks!
Thanks for your question. We’ll take a look at AGT, and compare it to Archer Daniels, in an upcoming Advice for Inner Circle Members email.