Archer-Daniels Midland (ADM) Stock Analysis

by | Dividend Aristocrats, Dividend Champions

Archer-Daniels Midland Dividend

Sector: Consumer Defensive      Industry: Farm Products

Archer-Daniels Midland has paid a dividend since 1927 and increased its dividend for 46 consecutive years; qualifying the company as a Dividend Aristocrat and Dividend Champion.

ADM operates on super thin margins which is an exemplification of the fact it operates without a moat. Being a middle man in this competitive industry is really tough.

Current Dividend Annualized: $1.48

Archer-Daniels Midland (ADM)  Intrinsic Value – Margin of Safety Analysis            

(updated June 2021)

Normalized Diluted Earnings Per Share (TTM): $3.68
Cash flow From Operations Per Share (TTM):  <$-3.97>
Free Cash Flow Per Share (TTM): <$-2.55>

Estimated Intrinsic Value: $40

Target Buy Price Based on Required Margin of Safety =  $29
(Required Margin of Safety Based On Risk Stability Grade:

A = 10%, B = 20%, C = 30%, D = 40%, F = 50%)

Target SELL Price Based on Estimated Intrinsic Value = $42
(Allow Overvaluation Adjusted by Risk Stability Grade:

A = 20%, B = 15%, C = 10%, D = 5%, F = 0%)

 

Risk / Stability Grade: D

A grade indicates a quality company with a strong balance sheet, high earnings quality, and a positive business environment. These stocks require the slimmest margin of safety within the stock universe.

B grade indicates a company with a good balance sheet, good earning quality, and a stable business environment. The margin of safety required should be greater than stocks with an A grade but less than the average stock.

C grade indicates a company with a sufficient balance sheet, at least average earnings quality, and a reasonably stable business environment. The margin of safety required is greater than A & B stocks, but less than D & F stocks.

D grade indicates a company in good standing but has issues that could affect its stability and long term risks. D rated stocks should require a large margin of safety when purchased.

F grade indicates a company with significant issues that are currently affecting its stability and long term risks. Require an extremely large margin of safety for F rated stocks when purchased.

 

Financial Risk Grade:  C

A grade indicates an extremely low probability of a dividend cut. This rating is reserved for companies with strong balance sheets and/or excellent dividend histories.

B grade indicates a very low probability for a dividend cut.

C grade indicates a low probability for a dividend cut and/or average safety risk.

D grade indicates there are issues that should be considered concerning future dividend payments.

F grade indicates serious dividend safety risks. Investors should complete comprehensive due diligence before investing.

 

Earnings Quality Grade:  C

A grade indicates earnings quality is high or far above average.

B grade indicates earnings quality is good and/or above average.

C grade indicates earnings quality is acceptable or average.

D grade indicates earnings quality is poor and requires thoughtful due diligence.

F grade indicates the quality of the earnings is poor or far below average requiring serious due diligence.

Earnings Report:   3/31/21

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AAAMP Portfolios Position Disclosures:
Dividend Growth & Income – None
Treasure Trove Twelve – None
Global Dividend Balanced – None
Global Value – None
Global Value Aggressive – None
High Yield – None

Company Description

Sector: Consumer Defensive
Industry: Farm Products

Archer-Daniels Midland Co is a major processor of oilseeds, corn, wheat, and other agricultural commodities. Additionally, the company owns an extensive network of logistical assets to store and transport crops around the globe. Its end products include vegetable oil and meal, corn sweeteners, flour, feed ingredients, ethanol, and natural flavors.

SWOT Analysis

Strengths

Archer-Daniels Midland has sustainable competitive advantages such as size, a far reaching global research and development network, global transportation networks, a state of the art culinary center, plus processing plants, storage, and laboratories that offer barriers to entry that disadvantage smaller regional competitors.

ADM is a premier soybean processor (a key component of animal feeds) and is perfectly positioned for emerging markets where meat consumption is projected to experience significant growth.

Weaknesses

ADM is highly susceptible to negative shocks from commodity price volatility. The cost of energy, which can be volatile, is an important cost of production.

Opportunities

The global needs for food and nutritional improvements will be increasing demand for ADM products for decades to come.
Lower fuel and energy prices (at least in the short run) could reduce cost and boost margins.

Threats

Banning of Genetically modified organisms (GMO’s) in certain countries reduces the number of markets for some products.

ADM has benefited from government subsidies for corn ethanol. The Trump administration will be looking for ways to reduce government payouts. If these subsidies were to be eliminated or reduced it would be a negative for company earnings.

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Disclaimer:
While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.

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