Citi Downgrades Archer-Daniels-Midland On Petroleum 'Wild Card'

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In a report published Wednesday, Citi analyst David Driscoll downgraded the rating on
Archer Daniels Midland Company
ADM
from Buy to Neutral, while reducing the price target from $55 to $51. Archer Daniels' 2Q results are expected to come under pressure due to weakening ethanol prices and margins. Slow US farmer selling is also likely to have resulted in "reduced grain merchandising volumes and margins at ADM," analyst David Driscoll said. The EPS estimates for 2015, 2016 and 2017 have been reduced from $3.35 to $3.05, from $3.60 to $3.40 and from $3.85 to $3.75, respectively. Driscolli mentioned that petroleum prices held the key to Archer Daniels' future performance, while adding, "our estimates could hold downside if petroleum continues to slide, as every $5/bbl move in petroleum impacts ADM's annual EPS from ethanol by +22c/sh, all else equal." The company's grain merchandising business is also expected to be hit by a 10 percent y/y reduction in 2Q15 US grain exports. "Further, while US soy crush margins remain robust, significant declines in canola crush margins (25% of crush) are likely to weigh on results," the Citi report stated. While pointing out that Archer Daniels' global agricultural operations were highly sensitive to global economic conditions, Driscolli mentioned, "Slowing emerging market growth, headlined by China, represents an incremental risk to the story." "Thus, if these concerns gain add'l substance we would expect pressures to manifest in the form of weakening volumes and margins at ADM," the report noted.
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Posted In: Analyst ColorDowngradesPrice TargetAnalyst RatingsCiti
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