Archer Daniels Midland Company Quarterly Valuation – January 2015 $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 Most Undervalued Companies for the Defensive Investor – December 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 Company (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’s operations are classified into three business segments: Oilseeds Processing, which includes activities related to the origination, merchandising, crushing, and further processing of oilseeds, such as soybeans and soft seeds (cottonseed, sunflower seed, canola, rapeseed, and flaxseed) into vegetable oils and protein meals; Corn Processing, which is engaged in corn wet milling and dry milling activities, primarily located in the United States, and Agricultural Services, which utilizes its United States grain elevator and global transportation network to buy, store, clean, and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, rice, and barley, and resells these commodities primarily as food and feed ingredients and as raw materials for the agricultural processing industry.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - FAIL
  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 $47.60
MG Value $8.03
MG Opinion Overvalued
Value Based on 3% Growth $34.54
Value Based on 0% Growth $20.25
Market Implied Growth Rate 5.74%
Net Current Asset Value (NCAV) $7.72
PEmg 19.98
Current Ratio 1.94
PB Ratio 1.54

Balance Sheet – September 2014

Current Assets $26,639,000,000
Current Liabilities $13,751,000,000
Total Debt $5,346,000,000
Total Assets $41,821,000,000
Intangible Assets $732,000,000
Total Liabilities $21,595,000,000
Outstanding Shares 653,000,000

Earnings Per Share

2014 (estimate) $2.92
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) $2.38
2013 $2.19
2012 $2.35
2011 $2.56
2010 $2.87
2009 $2.65

Dividend History


Archer Daniels Midland Company is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the insufficient growth over the last ten years and the low current ratio.  The Enterprising Investor is only concerned by the lack of earnings growth over the last five years.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company 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 $2.38 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 5.74% 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 Company (ADM) for greater 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 Company (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 Company (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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