UPDATE: BMO Capital Markets Reiterates Market Perform Rating, Lowers PT on Darling International

In a report published Monday, BMO Capital Markets reiterated its Market Perform rating on Darling International DAR, but slightly lowered its price target from $18.00 to $17.00. BMO Capital noted, “We remain on the sidelines, as DAR's earnings power may be limited by the challenging fundamentals in its base business and a step-down in Diamond Green Diesel's profit. First, the divergence between rendering values and underlying commodity prices creates a degree of uncertainty for DAR's base earnings. Specifically, in contrast to corn/soybean meal prices, rendering values – tallow, yellow grease, and cattle/hog bone meal prices – have fallen 20%-30% since September, while California bone meal and poultry byproduct declined 5%-15%. Second, though we remain encouraged by DAR's ability to attract new customers, DAR's volume may be limited as 1) cattle slaughter may begin to decline in January given cattle placed on feed declined 10%-20% from year-ago levels in each of the last three months and October placements may decline 15%; 2) hog herd liquidation likely will create at least a 1%-2% contraction in hog supplies in 2013; and 3) chicken producers – albeit stubborn – likely will eventually cut production. Third, a step-down in Diamond Green Diesel's profit from our initial expectations may limit DAR's earnings power.” Darling International closed on Friday at $15.85.