Valuation
Since the beginning of the year, ADM’s stock is up 5.6% while the S&P 500 Index has increased 0.4%, and the Nasdaq Composite Index has lost 5.6%.
However, since the beginning of 2012, ADM’s stock has gained only 35.4%. In this period, the S&P 500 Index has increased 63.1% and the Nasdaq Composite Index has gained 81.4%.
According to TipRanks, the average target price of the top analysts is at $42, an upside of 8.5% from its May 4 close price, however, in my opinion, shares could go higher.
Regarding its valuation metrics, ADM’s stock is pretty cheap.
– Trailing P/E is very low at 12.95
– Forward P/E is also low at 13.51
– Price-to-sales ratio is extremely low at 0.34
– Enterprise Value/EBITDA ratio is low at 9.60.
Moreover, ADM’s Efficiency parameters have been much better than its industry median, its sector median and the S&P 500 median as shown in the table below:
Source: Portfolio123
You can read more about these efficiency ratios (and much more) at this list of 101 financial ratios and metrics.
ADM raised its dividend by 7% on February 02. The annual dividend yield is at 3.1%, and the payout ratio is only 37.3%.
The current yield is historically high, which indicates that the stock is undervalued, according to some dividend assessment theories.
The annual rate of dividend growth over the past three years was very high at 17.8%, and over the past five years was at 14.1%.
Source: company’s reports
*assuming same dividend rate for the year
ADM repurchased about $300 million of shares in the quarter as it continues to execute on its balanced capital allocation framework. The company returned $0.5 billion to shareholders through dividends and share repurchases.
Final Thoughts
Continued low agriculture commodities prices and challenging market conditions caused Archer Daniels Midland Company (NYSE:ADM) to miss expectations slightly in the first quarter of 2016.
However, According to the company, it would remain on track to achieve its 15% to 20% operating profit growth target for 2016.
As I see it, ADM is an excellent candidate to be included in diversified large-cap dividend stock portfolio. While waiting for a significant rebound in the price of agriculture commodities, investors can enjoy the generous dividend yielding 3.1% a year.
The average target price of the top analysts is at $42, an upside of 8.5% from its May 4 close price, however, in my opinion, shares could go higher. ADM’s combination of an above average yield, solid long-term growth prospects, cheap valuation, and long dividend history make it a favorite of The 8 Rules of Dividend Investing.
Disclosure: This article is originally published on Sure Dividend by Arie Goren.
