Darling Ingredients Inc.

DAR Details

Darling Ingredients Inc. (NYSE: DAR) is a leading producer of organic ingredients globally with operations spread across five continents. The company produces a wide range of sustainable protein and fat products and is also among the largest producers of renewable clean energy.

Results Performance for the Year Ended 1 January 2022 – (FY21)

• Net income stood at $650.9 million, or $3.90 per GAAP diluted share, supported by strong net sales of $4.7 billion in FY21.
• Combined adjusted EBITDA stood at $1.235 billion in FY21, where the global ingredients business recorded an EBITDA of $851.4 million.
• Diamond Green Diesel sold a hefty 370.2 million gallons of renewable diesel at a mean price of $2.07 EBITDA per gallon.
• As of 1 January 2022, the company had $69.1 million in cash and cash equivalents, and $1.29 billion available under its committed revolving credit agreement, while total debt outstanding stood at $1.46 billion.

Source: Company Reports, Analysis by Kalkine Group

Outlook

The company is capitalizing on Q4FY21 record performance. Robust demand in the feed segment followed by rising demand at Diamond Green Diesel (DGD) positions the company well for solid performance in 2022. The announced contract to buy Valley Proteins strategically positions the company to provide low CI feedstocks to augment the rising demand for renewable diesel. It also widens the door to potential new export opportunities as the world drives toward decarbonization.

Key Risks

The company is exposed to fluctuating prices of multiple products associated with commodities markets. In addition, the business is reliant on the sourcing and procurement of raw materials at a favourable price to the company. Its business is susceptible to several laws, rules, and regulations. Besides, the shift in consumer preference also remains a potential risk.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Stock Recommendation

The company has delivered a 6-month and one-year return of ~+4.84% and ~+18.15%, respectively. The stock is trading higher than the average price of the 52-week low-high range at $59.00-$85.98.

The stock has been valued using an EV/Sales multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects a fall of low double-digit (in % terms). A slight discount has been applied to EV/Sales Multiple (NTM) (Peer Average), considering reduced cash balance in FY21 versus FY20 and fall in gross margin in FY21 over FY20.

Considering the aforementioned factors, the current trading levels, and the associated business risks, we advise the investors to book profits. We give a “Sell” rating on the stock at the current market price of $79.32 per share as of 3^rd March 2022 (Time: 9:57 AM, NY, USA).

Technical Overview:

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Darling Ingredients Inc. (DAR) is a part of Kalkine’s Global Primary Product

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Disclaimer

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