Wolfe Research lowers ADM shares target, still sees upside on biofuels demand

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On Wednesday, Wolfe Research adjusted its price target for Archer Daniels Midland Company (NYSE:), a major player in the agricultural processing and food ingredient sectors. The firm reduced the price target to $74.00 from the previous $82.00 while maintaining an Outperform rating on the company’s shares.

The reassessment came after observing that Archer Daniels Midland’s shares had decreased by 22% year-to-date, mirroring the Biofuels industry’s average but underperforming compared to the S&P Oil & Gas Exploration & Production Select Industry Index (XOP) which increased by 9% and the (SPX) which rose by 10%.

Over the last 12 months, ADM’s stock decline of 19% was less severe than the Biofuels industry’s 24% drop, but still lagged behind the XOP’s unchanged performance and the SPX’s 12% gain.

Wolfe Research’s valuation of ADM at $74 per share is based on a 6.5% yield on the company’s projected 2024 adjusted free cash flow (FCF). This adjusted FCF is calculated as adjusted net income plus depreciation, depletion, and amortization.

Archer Daniels Midland is expected to benefit from the expanding renewable diesel (RD) supply and additional policy support, particularly around sustainable aviation fuel (SAF), which includes both hydroprocessed esters and fatty acids (HEFA) and ethanol-based methods.

Furthermore, a tight overall agriculture market is anticipated to enhance crushing margins in ADM’s Agriculture and Oilseeds segment. Despite projections for crop growth and a correction in crush spreads, margins remain strong, especially for oil-rich commodities like canola.

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