uploads///Relative Valuation of ADMs and Peers

Archer Daniels Midland’s Valuation before Its 2Q16 Earnings

Sushree Mohanty - Author

Jul. 29 2016, Updated 9:04 a.m. ET

Valuation multiple

A company’s valuation multiple helps investors decide whether to enter or exit a stock. We’ll use the forward PE (price-to-earnings) multiple to compare Archer Daniels Midland’s (ADM) relative valuation with its peers.

A forward PE valuation multiple indicates how much an investor is willing to pay over the company’s EPS for the next four quarters.

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Archer Daniels Midland’s valuation compared to its peers

As indicated in the above graph, Archer Daniels Midland is trading at a higher PE multiple of 15.3x over its forward 12-month EPS—compared to Bunge as of July 25, 2016. Analysts expect Archer Daniels Midland’s adjusted EPS to fall 6% and its revenue to decline 5% in fiscal 2016.

In comparison, Ingredion (INGR) is trading at a higher forward PE multiple of 18.9x over the next 12-month EPS as of July 25, 2016. Analysts’ earnings expectation is 14% for fiscal 2016. The revenue estimate is comparable to 2015. This justifies the higher PE multiple. Management also raised its earnings guidance for 2016 to $6.45–$6.75.

Bunge (BG) is trading at the lowest PE multiple of 9.8x among its peers as of July 25. Analysts expect Bunge’s earnings to increase by 10% with a decline in revenue of 6% in fiscal 2016.

To gain exposure to Ingredion, you might consider investing in the PowerShares Dynamic Food & Beverage ETF (PBJ) and the iShares Morningstar Mid-Cap Value (JKI). They invest 3.4% in Ingredion.

Next, we’ll look at analysts’ ratings and recommendations for Archer Daniels Midland.


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