Citi upgraded Archer Daniels Midland Co ADM's stock last week, and the processor of agricultural commodities earned another upgrade Sunday courtesy of Goldman Sachs.
A bullish stance on Archer Daniels' stock mostly comes from increased confidence in the company's profitability outlook for 2018 and beyond, Samuelson said in the upgrade note. (See the analyst's track record here.)
Consensus estimates are "underappreciating" Archer Daniels' earnings growth from a combination of the following factors, Samuelson said:
- A healthy oilseeds environment.
- Improved results in the Ag Services segment.
- A more favorable ethanol and corn processing environment in the U.S.
- Benefits from internal initiatives like cost cutting and inorganic corporate actions.
"We believe investors remain cautious due to several consecutive years of negative estimate revisions, and that as fundamentals continue to strengthen, we believe the stock will outperform as we begin to see the first cycle of positive estimate revisions in several years," Samuelson said.
Goldman's revised $50 price target is based on an equal blend of 16.5x (up from 14.5x) 2018E P/E and 9.75x (up from 9x) 2018E EV/EBITDA. The higher multiples are justified due to expectations of stronger growth in 2018 and beyond and a premium to some of rivals due a larger proportion of earnings coming from "more stable and value-added" businesses, the analyst said.
Shares of Archer Daniels were trading higher by 2.77 percent at the time of publication Monday morning.
Photo courtesy of Archer Daniels Midland.
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