Archer Daniels Midland Quarterly Stock Valuation – October 2014 $ADM

Archer_Daniels_Midland_(logo).svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies to Research for the Defensive Investor - October 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Archer Daniels Midland (ADM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Archer-Daniels-Midland-Company is engaged in the processing of oilseeds, corn, wheat, cocoa, and other agricultural commodities. The Company manufactures protein meal, vegetable oil, corn sweeteners, flour, biodiesel, ethanol, and other value-added food and feed ingredients. The Company also has a grain elevator and transportation network to procure, store, clean, and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, and barley, as well as processed agricultural commodities. Its operations are classified into three business segments: Oilseeds Processing, Corn Processing, and Agricultural Services. The Company has a 50% interest in Edible Oils Limited, a joint venture between the Company and Princes Limited to procure, package, and sell edible oils in the United Kingdom.
ADM Chart

ADM data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 - PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - FAIL

Valuation Summary

Key Data:

Recent Price $45.40
MG Value $6.91
MG Opinion Overvalued
Value Based on 3% Growth $33.96
Value Based on 0% Growth $19.91
Market Implied Growth Rate 5.44%
Net Current Asset Value (NCAV) $7.45
PEmg 19.39
Current Ratio 2.07
PB Ratio 1.48

Balance Sheet – 6/30/2014

Current Assets $24,658,000,000
Current Liabilities $11,891,000,000
Total Debt $5,369,000,000
Total Assets $39,930,000,000
Intangible Assets $753,000,000
Total Liabilities $19,746,000,000
Outstanding Shares 659,000,000

Earnings Per Share

2014 (estimate) $2.80
2013 $2.02
2012 $2.08
2011 $1.84
2010 $3.13
2009 $2.62
2008 $2.79
2007 $3.30
2006 $2.00
2005 $1.59
2004 $0.76

Earnings Per Share – ModernGraham

2014 (estimate) $2.34
2013 $2.19
2012 $2.35
2011 $2.56
2010 $2.87
2009 $2.65

Dividend History
ADM Dividend Chart

ADM Dividend data by YCharts


Archer Daniels passes the requirements of both the Defensive Investor and the Enterprising Investor.  Both investor types are only concerned initially by the lack of sufficient growth in earnings in recent years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  From a valuation side of things, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $2.87 in 2010 to only an estimated $2.34 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 5.44% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out previous ModernGraham valuations of Archer Daniels Midland (ADM) for better perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Archer Daniels Midland (ADM)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Archer Daniels Midland (ADM) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.






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