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Goldman Upgrades Darling Ingredients To Buy, Sees Tailwinds 'Too Big To Ignore'

Goldman Upgrades Darling Ingredients To Buy, Sees Tailwinds 'Too Big To Ignore'
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Shares of Darling Ingredients Inc (NYSE: DAR) surged as much as 10 percent to $15.13 on the day — $0.80 below its 52-week high of $15.93 — after Goldman Sachs upgraded the stock to Buy and raised price target by $2 to $18, implying an upside of 31 percent.

Benefits Ahead

Based in Irving, Texas, Darling Ingredients is a producer of sustainable natural ingredients from edible and inedible bio-nutrients.

"DAR is set to benefit from a number of improving market conditions in 2H16/1H17, including (1) tightening oilseed markets, (2) stronger demand for bio/renewable diesel as the market begins to appreciate a potential D4 RIN shortage under current RFS standards, and (3) a healthy 8.6 percent 2017E FCF yield to accelerate deleveraging," analyst Adam Samuelson wrote in a note.

Samuelson expects increased investor confidence in inflecting fundamentals to sustain outperformance, where Darling could be a key beneficiary of a number of dislocations across Ag markets near term.

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More Positives For Darling

The analyst sees Darling as a key beneficiary of recent of tightness in oilseed and corn markets emanating from South America, concerns of a potential La Niña event and strengthening animal livestock feed demand.

The company would also benefit from tighter RIN / biodiesel markets, "where aggressive RFS targets and a large total advanced biofuel compliance gap are likely to improve profitability for DAR's Feed segment (fat prices), and both DAR's Fuel segment and DGD JV (RINs)."

"[E]very $0.10 increase in the D4 RIN price increases total DAR EBITDA (including contribution from DGD JV) by ~2.3 percent," Samuelson said.

The analyst noted potential upside from a potential renewal of the $1/gal bio-diesel blenders' tax credit (BTC), CA's LCFS market, and DGD's expansion in 2018.

Samuelson raised his 2016 EPS estimate to $0.62 from $0.60 and 2017 EPS view to $0.87 from $0.62. The analyst expects revenue of $3.436 billion for 2016 and $3.604 billion for 2017.

At time of writing, shares of Darling Ingredients had climbed 8.59 percent on the day to $14.92.

Latest Ratings for DAR

Aug 2018JP MorganMaintainsNeutralNeutral
Aug 2018BMO CapitalMaintainsMarket PerformMarket Perform
Mar 2018Goldman SachsDowngradesBuyNeutral

View More Analyst Ratings for DAR
View the Latest Analyst Ratings

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