ADM - Embedded Expectations Analysis - 2019 01 08
Archer-Daniels-Midland Company (ADM:USA) currently trades near historical averages relative to UAFRS-based (Uniform) Assets, with a 0.9x Uniform P/B, suggesting market expectations for flat profitability. That said, management appears concerned about market positioning, initiatives, and costsSpecifically, management might be concerned about their ability to maintain their positioning in the flavor and ingredients space, and might be concerned about their ability to improve revenues and margins going forward. Moreover, they may be downplaying the CapEx and IT resources required to drive planned initiatives, and may lack confidence in their ability to maintain their short-term liquidity position. Finally, they might be concerned about continued increases in manufacturing costs, and might be concerned about the sustainability of tailwinds related to improved mix.
Archer Daniels Midland is a human and animal nutrition and an agricultural origination and processing company. The company has three segments: Ag Services and Oilseeds, which includes activities related to the origination, merchandising, transportation, and storage of agricultural raw materials, and the crushing and further processing of oilseeds such as soybeans and soft seeds into vegetable oils and protein meals; Carbohydrate Solutions, which is engaged in corn and wheat wet and dry milling and other activities; and Nutrition, which engages in the manufacturing, sale, and distribution of an array of products including plant-based proteins, natural flavor ingredients, and flavor systems.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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