A detailed quantitative analysis by the Archer Daniels Midland Company (ADM) is linked here. Below are some highlights from the analysis linked above:
Company description: Archer-Daniels-Midland Co. is one of the world’s leading agribusiness companies with important market positions in agricultural processing and merchandising.
Fair value: When calculating the fair value, I take into account the differential fair value of the present value MMA along with these four fair value calculations. A detailed description can be found on page 2 of the linked PDF:
1. Avg. High yield price
2. 20-year DCF award
3. Avg. P / E price
4. Graham Number
ADM trades at a discount of only 3.) above. If the NPV MMA differential is also taken into account, the stock is trading at a premium of 21.5% on the calculated fair value of USD 41.17. ADM doesn’t deserve any stars in this area.
Dividend analytical data: There are three possible stars and three key metrics in this section. A detailed description can be found on page 2 of the linked PDF:
1. Free cash flow payout
2. Debt to total capital
3. Key Metrics
4. Dividend Growth Rate
5th years Div. growth
6. Rolling 4 year old Div. > 15%
ADM earned two stars for 2.) and 3.) above in this section. The stock earned a star because its recent debt to total capital was less than 45%. ADM received one star for an acceptable score on at least two of the four key metrics measured. The company has paid a cash dividend to shareholders every year since 1927 and has increased its dividend payments for 45 consecutive years.
Dividend Income vs. MMA: Why would you take the equity risk and invest in a dividend stock when you could get a better return on a much less risky money market account (MMA) or a government bond? This section compares that stock’s earning power to a High performance MMA. There are two points covered in this section. A detailed description can be found on page 2 of the linked PDF:
1. NPV MMA Diff.
2. years to> MMA
The NPV MMA Diff. of the $ 267 is below the $ 500 target I’m looking for for a stock that has been increasing dividends as long as ADM has done so. The stock’s current yield of 2.88% exceeds the estimated average MMA rate of 2.74% for 20 years.
Peers: The company’s peer group includes: Bunge Limited (BG) with a yield of 2.8%, Ingredion Incorporated (INGR) with a yield of 3.4% and INDUS Realty Trust, Inc. (INDT) with a yield of 3.0%.
Conclusion: ADM did not deserve any stars in the Fair Value category, earned two stars in the Dividend Analytical Data category and did not deserve any stars for a total of two stars in the Dividend Income vs. MMA category. This means that ADM is quantitatively referred to as 2 star weak Camp.
With my D4L-PreScreen.xls Model, I decided the stock price would have to rise to $ 41.66 before ADM’s NPV MMA differential dropped to the minimum of $ 500 that I’m looking for on a stock with 45 years of consecutive dividend increases. At that price, the stock would yield 3.5%.
Resetting the D4L-PreScreen.xls The dividend growth rate model and solution required to generate the targeted MMA differential of $ 500. The calculated rate is 4.7%. This dividend growth rate is above the 2.9% used in this analysis, so there is no margin of safety. ADM has one Risk assessment from 1.5, which it classifies as a low risk stock.
ADM is a highly diversified agricultural commodity company with an extensive processing and distribution network. Dominant in its industry, the company creates value by processing crops sourced from farmers in its refineries and using its extensive knowledge of the global marketplace to generate commercial sales. Over time, the company’s size and integration should continue to help it gain market share. The business is exposed to volatility in commodity prices.
Currently, ADM’s debt to total capital of 31% (versus 32%) is well within my acceptable level. However, the -25% free cash flow payout (-13% in the last review) is unsustainable. The stock is trading well above my calculated fair value of $ 41.17. Before considering a position at ADM, I’d like the free cash payoff to improve.
Disclaimer: The material presented here is for informational purposes only. The above quantitative stock analysis, including the star rating, is mechanically calculated and based on historical information. The analysis assumes that the share will develop in the future as it has in the past. In general, this is never true. Before buying or selling stocks they should do your own research and arrive at your own conclusion. Please see my disclaimer for more information.
Full disclosure: At the time of this writing, I did not hold a position in ADM (0.0% of my dividend growth stock portfolio).
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Tags: ADM, BG, INGR, GRIF,