Read This to Understand Archer-Daniels-Midland Company (ADM)

We've been asking ourselves recently if the market has placed a fair valuation on Archer-Daniels-Midland Company. Let's dive into some of the fundamental values of this large-cap Consumer Staples company to determine if there might be an opportunity here for value-minded investors.

Archer-Daniels-Midland Company's Earnings and Assets May Be Undervalued:

Archer-Daniels-Midland Company procures, transports, stores, processes, and merchandises agricultural commodities, products, and ingredients in the United States, Switzerland, the Cayman Islands, Brazil, Mexico, Canada, the United Kingdom, and internationally. The company belongs to the Consumer Staples sector, which has an average price to earnings (P/E) ratio of 24.36 and an average price to book (P/B) ratio of 4.29. In contrast, Archer-Daniels-Midland Company has a trailing 12 month P/E ratio of 10.3 and a P/B ratio of 1.57.

When we divide Archer-Daniels-Midland Company's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -1.92. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.

Growing Revenues With Increasing Reinvestment in the Business:

2018 2019 2020 2021 2022 2023
Revenue (MM) $64,341 $64,656 $64,355 $85,249 $101,556 $99,884
Gross Margins 6% 6% 7% 7% 7% 8%
Operating Margins 3.0% 2.0% 3.0% 4.0% 5.0% 5.0%
Net Margins 3.0% 2.0% 3.0% 3.0% 4.0% 4.0%
Net Income (MM) $1,815 $1,379 $1,782 $2,735 $4,365 $4,161
Net Interest Expense (MM) $364 $402 $339 $265 $396 $558
Depreciation & Amort. (MM) $941 $993 $976 $996 $1,028 $1,035
Earnings Per Share $3.19 $2.44 $3.15 $4.79 $7.71 $7.49
Diluted Shares (MM) 567 565 565 566 563 524
Free Cash Flow (MM) -$5,626 -$6,280 -$3,209 $5,426 $2,159 $3,619
Capital Expenditures (MM) $842 $828 $823 $1,169 $1,319 $1,433
Net Current Assets (MM) -$1,200 -$3,367 -$2,337 -$1,460 $252 $466
Long Term Debt (MM) $7,698 $7,672 $7,885 $8,011 $7,735 $8,244
Net Debt / EBITDA 3.54 4.82 5.22 3.88 2.75 2.52

Archer-Daniels-Midland Company's financial statements include several red flags such as slimmer gross margins than its peers, weak operating margins with a positive growth rate, and an unconvincing cash flow history. Additionally, the firm has a highly leveraged balance sheet. On the other hand, the company benefits from growing revenues and increasing reinvestment in the business and a strong EPS growth trend.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.