Shares of Archer Daniels Midland Company (ADM) inched up 1.7% since the company announced new developments to its existing portfolio management on Apr 15, 2014. These strategies are expected to help the company in realizing value from its businesses and investing the same in best possible resources to enhance returns.
Firstly, on witnessing lower-than-expected returns from its South American fertilizer business, the company decided to vend these operations by entering into an agreement with The Mosaic Company (MOS), post which ADM will be entitled to purchase fertilizers from Mosaic and will supply fertilizers to certain customers in Brazil and Paraguay. The move is expected to augment the company’s returns and help maintain amicable relationships with cultivators.
In a separate issue, the company stated that after several failed attempts to sell its chocolate and cocoa business, it has hired advisors to facilitate the sale of its chocolate business. ADM also decided to retain the cocoa press assets as this industry is picking momentum due to improvement in crop supplies. Therefore, the company believes this move will enable it to meet its return objectives.
Finally, in an effort to enhance its global origination network and serve customers better, Archer Daniels has bought the remaining 20% stake of Alfred C. Toepfer International for approximately $115 million. Toepfer has offices in the Americas, Africa, Asia, Australia and Europe and has thereby facilitated Archer Daniels to increase its global reach.
Propelled by these initiatives, this world’s largest corn producer hit a 52-week high of $45.02 on the last trading day, thereby amassing a year-over-year return of 42.9%. Year-to-date, the company’s shares climbed 5.3%.
Moreover, ADM currently trades at a forward P/E of 14.1x, a 6.1% discount to the peer group average of 15.01x, leaving room for further upside potential. This, along with the above mentioned developments, instills confidence among investors and makes them constructive on this Zacks Rank #3 (Hold) stock.
Going forward, we expect Archer Daniels Midland’s consistent focus on enhancing processing capabilities and increasing its global footprint to drive growth. The company intends to invest around $1.4 billion in capital projects in 2014, the majority of which will be in high-growth markets outside the U.S, further underscoring its growth prospects.
Apart from Archer Daniels, Anheuser-Busch InBev SA/NV (BUD) and Colgate-Palmolive Co. (CL) hit 52-week highs of $109.25 and $67.40, respectively on Apr 16, 2014.
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Zacks Investment Research
- Consumer Discretionary
- Archer Daniels Midland Company
- The Mosaic Company