Wednesday - Citi has upgraded Darling Ingredients (NYSE: NYSE:DAR) stock from Neutral to Buy, despite lowering the price target to $48 from $50. The firm's analyst cited the stock's 25% decline year to date as the steepest drop within their coverage area. The revised 2024 EBITDA estimate for Darling Ingredients falls below the company's guidance range of $1.3-1.4 billion, acknowledging current market apprehensions.
The rationale behind the upgrade lies in the anticipation of improved earnings in 2025. This outlook is based on the expected sales of higher-margin sustainable aviation fuel from Diamond Green Diesel, anticipated higher Low Carbon Fuel Standards credit prices in California, and favorable changes to US biofuels tax credits.
Although these factors are predicted to boost earnings in 2025, the analyst suggests that increased visibility on these developments in the upcoming months could lead to a rise in the share price sooner.
Darling Ingredients' poor performance so far this year is contrasted with the potential for a significant earnings rebound. The company is poised to benefit from its involvement in the sustainable aviation fuel sector, which is likely to gain from environmental regulatory tailwinds. Additionally, the financial impacts of state-level initiatives and federal policy adjustments are expected to play a crucial role in the company's future profitability.
The upgrade reflects a sentiment that the current share price has factored in the near-term challenges faced by Darling Ingredients. With the market already adjusting to the lowered expectations for 2024, the focus shifts to the medium-term prospects that could catalyze a recovery in the stock's valuation.
In summary, Citi's position suggests that while Darling Ingredients may face headwinds in the near term, the company's strategic direction, especially in sustainable fuel production and regulatory advantages, could lead to a more favorable financial performance in the following year, offering a potential upside for investors.
In other recent news, Darling Ingredients has made significant strides in its financial performance and strategic growth. The company reported a combined adjusted EBITDA of $280.1 million for the first quarter of 2024, which included a notable $25 million inventory adjustment.
Despite a decline in fat prices and challenges in the LCFS market, the company remains optimistic about its future, particularly with the upcoming launch of value-added products like active peptides and the construction of its sustainable aviation fuel (SAF) plant.
Analyst firm Stifel recently adjusted its outlook on Darling Ingredients, reducing the price target to $85 from the previous $90, while reaffirming a Buy rating on the stock. This adjustment followed a comprehensive review of the company's quarterly results, updated guidance, and current commodity prices. Despite the downward adjustment, Stifel maintains confidence in the company's performance, citing improving debt management and cash flow generation capabilities.
These are recent developments that have shaped the trajectory of Darling Ingredients. The company's commitment to sustainability and innovation is evident in its strategic decisions, such as securing three-year offtake agreements for its initial SAF production.
Analysts from firms such as Baird, Stifel, and Piper Sandler have expressed confidence in Darling's prospects, with ratings ranging from "Outperform" to "Buy," and price targets suggesting room for growth. Despite facing immediate challenges, including lower DGD margin capture and weaker feed/food volumes, Darling Ingredients' long-term outlook remains positive.
InvestingPro Insights
In light of the recent upgrade by Citi, real-time data from InvestingPro provides a deeper look into Darling Ingredients' financial health and market performance. With a market capitalization of $5.97 billion and a P/E ratio standing at 11.26, the company presents itself as trading at a low earnings multiple, which aligns with the Citi analyst's perspective of the stock's value. Despite analysts anticipating a sales decline in the current year, Darling Ingredients has managed to maintain a gross profit margin of 23.76% over the last twelve months as of Q1 2024.
Investors should note that while the stock has experienced a significant drop over the last month, with a 19.44% decline, it's trading near its 52-week low, which could signal a potential buying opportunity. Additionally, the company's liquid assets exceed its short-term obligations, indicating a stable financial position in the near term. For those considering a deeper dive into Darling Ingredients' potential, InvestingPro offers additional tips on their platform. As of now, there are 9 more InvestingPro Tips available for Darling Ingredients, which can be accessed with the promo code PRONEWS24 for an extra 10% off a yearly or biyearly Pro and Pro+ subscription.
The InvestingPro Fair Value estimate of $53.17 also provides a reference point for investors, suggesting a potential upside from the previous close price of $37.34. With the next earnings date set for August 6, 2024, stakeholders will be keenly watching for any signs of the anticipated improvements in earnings for 2025 and beyond.
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