ShinesRooms Examines Archer Daniels Midland and Bunge: Farm Stocks Dust off Drought Woes
The ShinesRooms.com Provides Stock Research on Archer Daniels Midland Company and Bunge Limited
NEW YORK, NY -- (Marketwire) -- 02/07/13 -- Farm products companies faced a tough time due to weather and regulatory uncertainties. According to a report, corn production dropped a quarter in 2012. The decline in production led to higher price, increasing the cost burden on farm products companies like Archer Daniels Midland. However, the companies met the dire situation by expanding abroad. With improvement in the farm sector in the U.S., stocks like Bunge Limited are setting new high prices.
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Archer Daniels Midland Company reported encouraging quarterly results despite concerns about regulatory actions related to ethanol subsidies. The company earned $510 million for the quarter. The stock offered a flat return in the past 12 months but it also has a 2.30 percent in dividend yield and it is expected to keep increasing its dividend as it has been doing for the past 37 years. The stock is an attractive option for income investors. While ADM faces certain issues including its negative margins from ethanol business, it is also looking to expand its reach internationally. However, ADM's attempt to acquire GrainCorp last year failed as the Australian company declined ADM's $3 billion offer. ADM already owns stake in GrainCorp and it planned to acquire the rest to gain a foothold in the Australian market.
ADM also has to contend with increase in its costs. In the past year, drought conditions prevailing in the U.S. also put strain on the company's fortunes. Its ethanol business is being compromised due to uncertainty about the subsidies as well as the rise in raw material costs. However, the company is moving in the right direction and performed well for the fiscal second quarter. The stock trades at PE of 21.24, lower than the industry average.
While ADM's attempt to expand into Australia failed, its peer Bunge Limited is reducing its presence in Brazil. Late last year, the company reported the sale of its Brazilian assets for $750 million to Yara International. Its business in Brazil contributed $2.65 billion in revenue for FY 2011. The move was rather abrupt as Bunge seemed to be intent on augmenting its operations in the market. The deal is likely to be finalized by the second half of this year.
Bunge stock grew over 40 percent in the past 12 months and the company is looking to return more value to its investors through a stock repurchase program. Bunge recently increased the scope of its share buyback program by $275 million. The move also shows that the management believes its stock to be undervalued in the market. The stock trades at Price/Earnings ratio of 13.52, far lower than the PE ratios sported by its peers. Bunge is also expected to perform better in overseas markets. It recently inked a new deal with Sofiproteol for biodiesel units in Europe. The company is looking for higher revenue from China as well.
Bunge is in bullish phase currently as it has been hitting new 52-week highs lately. However, there is still upside left in the stock as it expects to benefit from improving weather conditions in the U.S. and better international sales. The company is set to release its earnings today, and at the time this article was finalized earnings data was unavailable.
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