On Friday, investment firm Baird maintained a positive outlook on Darling Ingredients Inc. (NYSE:DAR), reiterating an Outperform rating alongside a steady price target of $60.00. The firm's analysis points to an anticipated inflection in waste fats and oils that has not yet materialized, and a gradual increase in Low Carbon Fuel Standard (LCFS) credits. Despite these expectations, the commodity market has presented a mixed picture over the past month.
According to Baird, prices for yellow grease and tallow have decreased, while used cooking oil (UCO) has seen a price uptick. However, LCFS credits, while on the rise, are still trading slightly below the average price in the second quarter. This situation, combined with lower renewable diesel pricing, is expected to contribute to a weaker third quarter for Darling Ingredients' joint venture, Diamond Green Diesel (DGD).
The firm's recent checks indicate that the market has already accounted for the anticipated second-half weakness in their estimates. The consensus for 2024 EBITDA (earnings before interest, taxes, depreciation, and amortization) now stands at $1.24 billion, which is slightly below Baird's projection of $1.27 billion and the company's own guidance range of $1.3 billion to $1.4 billion. Furthermore, investor expectations for Darling Ingredients' performance may be even more conservative, with estimates ranging between $1.15 billion and $1.2 billion.
Baird's commentary reflects a cautious but still optimistic sentiment among investors regarding the future of Darling Ingredients, especially looking ahead to 2025. The firm's analysis suggests that while the market anticipates a weaker performance in the latter half of the year, these projections are already integrated into the current estimates.
In other recent news, Darling Ingredients reported strong second-quarter results, with an EBITDA of $274 million, net income of $78.9 million, and net sales totaling $1.5 billion. The company's joint venture, Diamond Green Diesel, has secured a contract to supply sustainable aviation fuel to John F. Kennedy International Airport, aligning with its plans to upgrade nearly half of its 470 million gallon annual production capacity to sustainable aviation fuel by the end of 2024.
In the realm of leadership, Randy Hill has been appointed as an independent director to Darling Ingredients' board, bringing his experience from previous roles including an audit partner at KPMG. This strategic appointment is part of the company's ongoing efforts to strengthen its leadership team and corporate strategy.
Analysts have been active in assessing Darling Ingredients. TD Cowen revised its price target on the company's shares to $43.00, maintaining a Hold rating, while Citi reaffirmed its Buy rating with a consistent $48.00 price target. Baird maintained its Outperform rating on the company's shares, with a steady price target of $60.00.
These assessments are based on various factors, including potential legislative changes, fluctuating commodity prices, and the company's future earnings prospects. For instance, Darling Ingredients has highlighted potential earnings drivers such as California's Low Carbon Fuel Standards, federal carbon-based tax credits, and the introduction of higher margin sustainable aviation fuel.
Lastly, board member Michael E. Rescoe has retired, marking the end of his significant contributions to the company's growth and global expansion.
InvestingPro Insights
Baird's positive stance on Darling Ingredients is echoed by certain metrics from InvestingPro. With a market capitalization of $5.9 billion and a P/E ratio of 15.99, Darling Ingredients appears to be valued at a level that reflects its recent performance. The company's adjusted P/E ratio over the last twelve months stands at 17.67, suggesting a slight premium compared to historical earnings. Despite a revenue decline of 13.44% over the last twelve months, the company has maintained a gross profit margin of 23.77%, indicating a robust ability to control costs relative to sales.
InvestingPro Tips highlight that while analysts expect a sales decline and a drop in net income this year, they also predict the company will remain profitable. Additionally, Darling Ingredients' liquid assets exceed its short-term obligations, providing financial flexibility. It's worth noting that the company does not pay a dividend, which may be a consideration for income-focused investors. For those interested in a deeper dive, there are additional InvestingPro Tips available, offering further insights into Darling Ingredients' financial health and market expectations.
The InvestingPro Fair Value estimate for Darling Ingredients stands at $51.52, which is below Baird's price target but above the current trading price, suggesting potential upside. As investors weigh Baird's outlook against market dynamics, these InvestingPro metrics and tips provide a valuable reference point for those making informed investment decisions.
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