ADM Stock Sees Earnings Soar As Demand Remains Robust

Archer-Daniels-Midland (ADM) is back in the IBD Big Cap 20. ADM stock is one to closely watch as it consolidates in a flat base below a 98.38 buy point.

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ADM — headquartered in Chicago — is a food processing giant. Operating 270 plants and 420 crop procurement facilities worldwide, the company converts cereal, corn and oilseed into a plethora of products, from cooking oils and sweeteners to animal feed.

While the company is certainly not flashy, it provides crucial elements to food production and provides a strong hedge against food inflation.

Earnings Soar As Food Insecurity Looms Large

This year the company has benefited markedly from food insecurity and a war in Ukraine that disrupted supply chains and sent agricultural commodity prices soaring. After earnings per share grew from $3.59 in 2020 to $5.19 last year, another jump to $7.50 is expected this year.

Investors will see if the company hits that mark when Archer-Daniel-Midland reports its fourth-quarter earnings in late January. EPS is estimated at $1.62 on revenue of $25.12 billion. With the company beating earnings expectations for 13 quarters straight, investors should anticipate another beat this time around.

For 2023, earnings are expected to moderate only slightly to $6.68 while revenue is projected to come in at $101.15 billion, marginally above revenue expectations of $100.76 billion this year.

ADM Stock Is Tops In IBD’s Food-Grain Group

Overall, the picture looks rosy for the food processing company. An IBD Composite Rating of 97 and EPS Rating of 98 currently put ADM as the top stock in IBD’s Food-Grains group. In the third quarter, the company experienced broad-based strength in every segment.

Nevertheless, while the company is well diversified, it still has a lot of dependency on cyclical agricultural prices and consumer demand.

With worries of a recession looming, ADM stock has been trending lower over the past few weeks. Shares remain in a flat base but are breaking below the 21-day exponential moving average. That’s a negative sign, at least in the short term.

Some long-term tailwinds are in the company’s favor, though. Agricultural damage due to climate change has risen dramatically and is expected to only accelerate. This comes as the global population continues to grow — especially in Africa, which will see food demand soar.

Russia also appears to be digging in its heels for the long haul in Ukraine. These factors could suggest that ADM stock could continue to outperform in the longer term, setting it up nicely if shares can break out past the 98.38 buy point.

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