Archer-Daniels Midland Co Valuation – February 2019 $ADM

Company Profile (excerpt from Reuters): Archer-Daniels-Midland Company, incorporated on May 2, 1923, is a processor of oilseeds, corn, wheat, cocoa and other agricultural commodities. The Company manufactures protein meal, vegetable oil, corn sweeteners, flour, biodiesel, ethanol, and other food and feed ingredients. The Company’s segments include Agricultural Services, Corn Processing, Oilseeds Processing, Wild Flavors and Specialty Ingredients, Other and Corporate. Its geographical segments include the United States, Switzerland, Cayman Islands and Germany. The Company also has a global 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. The Company is engaged in procuring, transporting, storing, processing, and merchandising agricultural commodities and products. The Company also processes corn, oilseeds, and wheat into products for food, animal feed, chemical and energy uses.


Downloadable PDF version of this valuation:

ModernGraham Valuation of ADM – February 2019

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 $23,798,182,550 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.75 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 15.81% Fail
6. Moderate PEmg Ratio PEmg < 20 14.26 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.27 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 1.75 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.87 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 Pass


Stage 2: Determination of Intrinsic Value

EPSmg $2.98
MG Growth Estimate 1.15%
MG Value $32.19
Opinion Overvalued
MG Grade A-
MG Value based on 3% Growth $43.19
MG Value based on 0% Growth $25.32
Market Implied Growth Rate 2.88%
Current Price $42.49
% of Intrinsic Value 132.00%

Archer Daniels Midland Co 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 has no initial concerns. 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 growing its EPSmg (normalized earnings) from $2.77 in 2015 to an estimated $2.98 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.88% 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 Co revealed the company was trading below its Graham Number of $49.76. The company pays a dividend of $1.34 per share, for a yield of 3.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 14.26, which was below the industry average of 26.71, 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 $-2.2.

Archer Daniels Midland Co fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$2.20
Graham Number $49.76
PEmg 14.26
Current Ratio 1.75
PB Ratio 1.27
Current Dividend $1.34
Dividend Yield 3.15%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $20,588,000,000
Total Current Liabilities $11,776,000,000
Long-Term Debt $7,698,000,000
Total Assets $40,833,000,000
Intangible Assets $4,041,000,000
Total Liabilities $21,837,000,000
Shares Outstanding (Diluted Average) 567,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.25
Dec2018 $3.19
Dec2017 $2.79
Dec2016 $2.16
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 $0.41
Jun1999 $0.30

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.98
Dec2018 $2.87
Dec2017 $2.69
Dec2016 $2.59
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

Recommended Reading:

Other ModernGraham posts about the company

Archer-Daniels Midland Co Valuation – May 2018 $ADM
Archer Daniels Midland Company Valuation – January 2017 $ADM
Archer Daniels Midland Co – August 2016 $ADM
Archer-Daniels Midland Co Valuation – February 2016 $ADM
Archer Daniels Midland Valuation – November 2015 Update $ADM

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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.

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