Tuesday, April 07, 2009

Archer-Daniels (NYSE:ADM): Downgraded to Sell at Citigroup

Citigroup is out downgrading Archer-Daniels-Midland Company (NYSE:ADM) to Sell from Hold following their our visit with ADM management in Decatur, Illinois, which confirmed their belief that fundamental trends are deteriorating across ADM's major businesses, namely Oilseed Processing and Agricultural Services. Citigroup is maintaining their below consensus EPS estimates and $25 price target which, at current prices, implies -13% in expected downside.

F3Q09 Report Represents a Negative Catalyst — Citi believes that weakening trends in Oilseeds and Ag. Services have yet to manifest themselves but will on ADM's F3Q09 earnings report. They believe that F3Q09 EPS will come in below consensus of 52c (they are at 46c) and will likely prompt a lowering of F2010 consensus estimates of $2.87 which they believe are too high and will need to come closer to Citi's F2010 estimate of $2.00.

In some cases, the deterioration has been extremely rapid—agricultural services and oilseed processing—while in other cases the deterioration has been a bit more moderate such as in the firm's wheat and cocoa processing division.

Regression Analysis Points Towards Weakening Oilseeds & Ag. Services Profits — Slowing agricultural demand and overcapacity are negatively impacting volumes and margins in ADM's Oilseeds and Ag. Services businesses. Citi's historical regression analysis of industry variables and ADM's performancepoints towards weakening profits for Oilseeds and Agricultural Services and suggests profits in line with or lower than their estimates for these segments.

Citi is also adding ADM to their Top Picks Sell list.

Notablecalls: The call caught my attention for several reasons:

- ADM has always been an analyst darling. There aren't that many firms out there with Sell ratings.

- The stock has held up really well over the past year and is actually up around 15% YTD.

- Citi highlights rapid deterioration in several areas.

ADM is set to report on Apr 29 and given how determined the analyst is calling for a miss, I'd say the stock may experience some downside in the n-t. I have very little feel for the actual magnitude of the move but around -5% seems prudent for today.

1 comment:

notablecalls said...

Guess I was a bit off with my -5% comment.