There was nothing but bad news last week for Archer Daniels Midland (NYSE:ADM).
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For one, the agricultural commodity trader announced a suspension of CFO Vikram Luthar as part of an inquiry into accounting practices within its nutrition division. The company also decided to postpone the release of its Q4 and FY 2023 results and has taken off the table all future projections related to the nutrition segment. Additionally, the company now anticipates reporting an adj. EPS above $6.90 for the fiscal year, falling significantly short of the Street’s $7.27 forecast.
It’s safe to say none of that went down too well with investors, who sent shares down by more than 23% last week. With the stock taking a beating, some may wonder if it’s an opportune moment to invest. However, UBS analyst Manav Gupta appears to disagree, as he has made adjustments to his model, and they are not in favor of the company.
Gupta has downgraded his rating from Buy to Neutral while his price target is slashed from $104 to $51, suggesting the shares have 7% downside from here. (To watch Gupta’s track record, click here)
Explaining his stance, Gupta said, “We see downside to street earnings driven by 1) No growth in Nutrition segment; 2) Soy crush driving Yoy Decline in Crush earnings, 3) Weaker RPO earnings due to refined soybean oil premium shrinking and 4) weaker carbohydrate solutions earnings driven by weakness in ethanol margins.”
On the plus side, despite reducing numbers, Gupta still sees the company delivering $1.3 billion post dividend FCF in both 2024 and 2025, which should still enable strong buybacks. “A key reason we are not Sell Rated on this name,” the analyst went on to add. So, what could help turn Gupta’s stance positive again? To get more constructive on ADM, a rebound in crush margins is what is required.
The rest of the Street almost unanimously agrees with Gupta’s view. Based on a mix of 9 Holds and 1 Sell, ADM stock receives a Hold consensus rating. That said, most see the shares now as undervalued, given the $63.67 average target implies the stock will surge 16% in the year ahead. (See ADM stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
