Demand for corn, soybeans, and wheat helped propel Archer-Daniels-Midland Company’s (ADM) most recent quarterly profit higher by 52%. (1) The company’s Chief Financial Officer, Ray Young, told shareholders and analysts “we expect Q3 performance for Ag Services and Oilseeds to be higher than the third quarter of 2020, driven by stronger results in crushing. We continue to anticipate full year results that will be significantly higher than 2020’s very strong performance,” (2) during ADM’s second quarter conference call.
Archer-Daniels Midland’s President and Chief Executive Officer (CEO) Juan R Luciano may have punctuated Young’s comments with an exclamation mark. After earnings were released, Luciano purchased nearly $1 million of the agricultural stock. He bought 16,790 shares at $59.54 a share, spending $999,667. (3)
Luciano is no stranger to trading ADM shares. In terms of numbers of transactions, the CEO has primarily been a buyer. From 2011 to August 2019, Luciano bought the Farm Products company stock eight times for sum of $1.8 million. As measured by dollars, the President and CEO is a net seller, unloading nearly $9.8 million in ADM stock in October 2020. (4)
Future enthusiasm might not be reflected in Wall Street’s estimates, yet. In the last week, only one of 11 analysts covering the agricultural giant has upped their expectations for the current year and none for 2022. (5)
As it stands now, ADM is forecasted to earn $4.45 per share in 2022, that’s down from this year’s consensus of $4.52. However, revenue is predicted to increase to $73 billion next year from $71.73 billion in 2021. For sales to go up and earnings per share (EPS) to fall, means profit margins must shrink.
Management feels margins will “normalize” but believes they will be able to “offset a lot of that through growth and through productivity.” (2). If that’s the case, then it’s our opinion that Wall Street could up their EPS estimates for 2021 and 2022.
Bullish revisions, should they come, are usually accompanied by higher price targets. As it stands now, the consensus one-year price target is $70.08. (6) That’s 17.35% higher than where AMD trades as we type ($59.72). Tack on the 2.48% dividend yield and the potential for growth and income close to 20%, if Archer-Daniels-Midland hits Wall Street’s price target. Current shareholders might see their dividend yield increase as management has a history or hiking payouts. (7)
Conclusion:
Archer-Daniels-Midland Company’s (ADM) recent earnings success and conference call guidance for a robust second half of 2021 should attract institutional investors, which could limit downside under normal market conditions. If we’ve made the correct call and analysts begin to upgrade their earnings forecasts, it would likely lead to increased buying pressure.
The prospect of a dividend increase is another potential reason for growth and income investors to consider investing in ADM. Finally, CEO Juan R Luciano’s $1 million buy lends confidence to Archer-Daniels-Midland’s solid performance lasting into 2022.
In our view, Archer-Daniels-Midland Company’s (ADM) is appropriate for growth and income investors with average risk tolerance.
1 – https://finance.yahoo.com/news/adm-quarterly-profit-surges-strong-123254480.html
2 – https://www.fool.com/earnings/call-transcripts/2021/07/27/archer-daniels-midland-company-adm-q2-2021-earning/
3 – https://finance.yahoo.com/news/archer-daniels-midland-co-adm-151503276.html
4 – https://www.secform4.com/insider-trading/1455792.htm
5 – https://finance.yahoo.com/quote/ADM/analysis?p=ADM
6 – https://finance.yahoo.com/quote/ADM?p=ADM&.tsrc=fin-srch
