Archer Daniels Downgraded to Underperform at BofA on Weakened Profitability Outlook

BofA analyst Salvator Tiano has downgraded Archer Daniels (ADM) to Underperform from Neutral with a price target of $54, citing a "soured" profitability outlook due to increased macro risks and the company's own performance. The analyst has lowered its 2025 EPS estimate to $4.75 from $5.25, seeing limited upside to the shares.

Archer Daniels (ADM), a leading agribusiness and food company, has faced a rough patch in recent months, prompting Bank of America (BofA) analyst Salvator Tiano to downgrade the stock to Underperform from Neutral [1]. Tiano cited increased macro risks and the company's own performance as the primary reasons for his pessimistic outlook, lowering the price target to $54 from $85 [1].

The downgrade comes amid a challenging quarter for ADM, which reported preliminary third-quarter adjusted earnings per share of $1.09, falling short of analysts' expectations of $1.25 [2]. The company also announced that it would restate previously filed financial statements for errors related to intersegment sales [2].

ADM's profitability has been affected by a range of factors. The AS&O (Ag Services and Oilseeds) segment, which accounted for 48% of the company's operating profit in the third quarter of 2024, saw a significant decline of 43% compared to the prior-year quarter [2]. Meanwhile, the Carbohydrate Solutions segment, which accounted for 38% of the company's operating profit, experienced a more modest decline of 3% [2].

The Nutrition segment, which accounted for the remaining 14% of the company's operating profit, faced particularly challenging conditions. Operating profit for the segment was $105 million, down 44% compared to the prior-year quarter [2]. Tiano noted that the Nutrition segment's performance was "lackluster," especially when compared to the EBIT or EBITDA return on assets for the rest of the company [1].

Despite these challenges, ADM's management remains optimistic about the company's prospects. Chair of the Board and CEO Juan Luciano stated that the company is taking necessary actions to improve performance and drive continued value creation [2]. However, with increased macro risks and the company's own performance challenges, it remains to be seen whether ADM can turn its fortunes around in the near term.

References:

[1] The Fly. (2022, October 25). ADM-Archer Daniels price target lowered by -- at BofA, here's why. Retrieved October 26, 2022, from https://thefly.com/thestreet/realmoneypro/index.php/ADMid3882486/ADM-Archer-Daniels-price-target-lowered-by--at-BofA-heres-why

[2] Benzinga. (2022, November 1). Archer-Daniels-Midland stock dips after Q3 preliminary results earnings miss, guidance cut amid restatement. Retrieved October 26, 2022, from https://www.benzinga.com/news/earnings/24/11/41746746/archer-daniels-midland-stock-dips-after-q3-preliminary-results-earnings-miss-guidance-cut-amid-rest