UPDATE: Wedbush Downgrades Darling International to Neutral, Lowers PT on Biodiesel Headwind

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In a report published Monday, Wedbush analyst Craig Irwin downgraded the rating on
Darling International
DAR
from Outperform to Neutral, and lowered the price target from $26.00 to $20.00. In the report, Wedbush noted, “We are downgrading shares of Darling to NEUTRAL from OUTPERFORM following the release of the EPA's ‘14 Biodiesel volume mandate (RVO) that was well below our base scenario, which now implies significant ‘14 headwinds for Darling's rendered fats pricing and demand. On Friday, EPA proposed a 1.28bn gal ‘14 biodiesel RVO, below our 1.5bn gal base scenario we originally based on statutory growth requirements in the Renewable Fuels Standard (RFS2). Details in RFS2 make it likely Obligated Parties will carry-forward compliance credits, driving even lower biodiesel production likely in around the 1.0bn gal range. Considering 2013 is currently tracking for ~1.7bn gal in production, a 700m gal 2014 decline would drive a 2.5m MT headwind for biodiesel feedstock demand. A big 20%+ chunk of biodiesel fats demand would be expected to be met with rendered fats products inside a total rendered fats market of around 4.2m MT. In our view, the Biodiesel RVO was likely victim of structural problems with the ethanol mandates at unachievable levels, leaving room for future positive changes. Falling biodiesel demand should directly translate into weak demand and pricing in rendered fats.” Darling International closed on Friday at $21.47.
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Posted In: Analyst ColorDowngradesAnalyst RatingsCraig IrwinWedbush
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