Credit Suisse lowers ADM target price

by Eric Schroeder
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NEW YORK — Credit Suisse has lowered its target price for Archer Daniels Midland Co. to $40, down from $47 at the end of September 2015. The research analyst group said the target price assumes a 13 times multiple on its reduced 2017 estimate of $3.

Robert Moskow, Credit Suisse
Robert Moskow, research analyst with Credit Suisse

“While we think ADM’s fundamental earnings power is greater than this, we struggle to identify the catalyst that will improve the company’s business conditions,” Robert Moskow, research analyst with Credit Suisse, wrote in a Jan. 13 report. “The glut of soybean inventory in Argentina, the competition from Brazil in the global export market, and the weak ethanol margins in the U.S. will hamper ADM’s results for at least six more months.”

Mr. Moskow said just about every division of ADM experienced significant challenges during the fourth quarter of fiscal 2015. For example, in the company’s oilseeds business, industry soybean crush margins fell dramatically in December when the South American basis widened. Meanwhile, in agribusiness, U.S. exports fell due to the strong U.S. currency and ample supplies internationally.

Mr. Moskow said Credit Suisse doesn’t see any relief in sight for ethanol prices or U.S. grain exports. As a result, the research analyst said it has lowered its estimates for the first half of 2016 below consensus. For 2016, Credit Suisse is expecting earnings per share of $2.90, which compares with $2.70 in 2015 and $3.12 in 2014.

“It is certainly possible that ADM’s U.S.-focused portfolio can regain its earnings power by the end of 2016 after South American farmers clear their inventories and U.S. farmers harvest another crop,” Mr. Moskow wrote. “Falling grain prices will encourage U.S. farmers to sell as their balance sheets get stretched, but with ethanol prices persistently depressed and the U.S. dollar unyieldingly strong, we don’t think this will be enough to get ADM back to normalized earnings of $3.50 — and certainly not enough for ADM to achieve its ‘mid-term’ goal of $4.50.”
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