Archer Daniels Midland Company Valuation – January 2017 $ADM
Benjamin 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 10 Stocks for Using A Benjamin Graham Value Investing Strategy – December 2016. 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 stock analysis showing 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 a processor of oilseeds, corn, wheat and other agricultural commodities and manufactures protein meal, vegetable oil, corn sweeteners, flour, biodiesel, ethanol, and other food and feed ingredients. The Company’s segments include Agricultural Services, which utilizes its the United States grain elevator , global transportation network and port operations to buy, store, clean and transport agricultural commodities, such as oilseeds, 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; Corn Processing, which is engaged in corn wet milling and dry milling activities; Oilseeds Processing, which includes global activities related to the origination, merchandising, crushing and further processing of oilseeds; Wild Flavors and Specialty Ingredients products, which include flavors, sweeteners and health ingredients; Other, and Corporate.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of ADM – January 2017
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $26,434,933,633 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.61 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Pass | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | -2.30% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 17.74 | Pass | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.53 | Pass | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 1.61 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.84 | Pass | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Fail | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $2.57 |
| MG Growth Estimate | -0.06% |
| MG Value | $21.55 |
| Opinion | Overvalued |
| MG Grade | B |
| MG Value based on 3% Growth | $37.30 |
| MG Value based on 0% Growth | $21.87 |
| Market Implied Growth Rate | 4.62% |
| Current Price | $45.65 |
| % of Intrinsic Value | 211.84% |
Archer Daniels Midland Company is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years. The Enterprising Investor is only concerned with the lack of earnings growth over the last five years. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.58 in 2012 to an estimated $2.57 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 4.62% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Archer Daniels Midland Company revealed the company was trading above its Graham Number of $37.86. The company pays a dividend of $1.18 per share, for a yield of 2.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 17.74, which was below the industry average of 24.74, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-3.01.
Archer Daniels Midland Company performs fairly well in the ModernGraham grading system, scoring a B.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$3.01 |
| Graham Number | $37.86 |
| PEmg | 17.74 |
| Current Ratio | 1.61 |
| PB Ratio | 1.53 |
| Current Dividend | $1.18 |
| Dividend Yield | 2.58% |
| Number of Consecutive Years of Dividend Growth | 20 |
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Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 9/1/2016 |
| Total Current Assets | $20,543,000,000 |
| Total Current Liabilities | $12,737,000,000 |
| Long-Term Debt | $6,594,000,000 |
| Total Assets | $39,853,000,000 |
| Intangible Assets | $3,852,000,000 |
| Total Liabilities | $22,315,000,000 |
| Shares Outstanding (Diluted Average) | 589,000,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $2.10 |
| Dec2015 | $2.98 |
| Dec2014 | $3.43 |
| Dec2013 | $2.02 |
| Jun2012 | $1.84 |
| Jun2011 | $3.13 |
| Jun2010 | $3.00 |
| Jun2009 | $2.62 |
| Jun2008 | $2.79 |
| Jun2007 | $3.30 |
| Jun2006 | $2.00 |
| Jun2005 | $1.59 |
| Jun2004 | $0.76 |
| Jun2003 | $0.70 |
| Jun2002 | $0.78 |
| Jun2001 | $0.55 |
| Jun2000 | $0.45 |
| Jun1999 | $0.35 |
| Jun1998 | $0.59 |
| Jun1997 | $0.54 |
| Jun1996 | $0.99 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $2.57 |
| Dec2015 | $2.77 |
| Dec2014 | $2.67 |
| Dec2013 | $2.36 |
| Jun2012 | $2.58 |
| Jun2011 | $2.96 |
| Jun2010 | $2.83 |
| Jun2009 | $2.65 |
| Jun2008 | $2.47 |
| Jun2007 | $2.10 |
| Jun2006 | $1.39 |
| Jun2005 | $1.01 |
| Jun2004 | $0.70 |
| Jun2003 | $0.63 |
| Jun2002 | $0.58 |
| Jun2001 | $0.49 |
| Jun2000 | $0.50 |
Recommended Reading:
Other ModernGraham posts about the company
Other ModernGraham posts about related companies
Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
