Tuesday, JPMorgan adjusted its price target on shares of Darling Ingredients (NYSE: NYSE:DAR), reducing it to $62 from the previous $66, while retaining an Overweight rating on the stock. The firm revised its financial model ahead of the company's first-quarter earnings for 2024, reflecting recent market pricing trends. JPMorgan now forecasts Darling Ingredients to post earnings per share (EPS) of $0.45, which is below the consensus estimate of $0.59, and down from the prior estimate of $0.85. The firm also reduced its expectation for earnings before interest, taxes, depreciation, and amortization (EBITDA) to $295 million, compared to the street's projection of $324 million and down from the earlier $368 million estimate.
In the Feed segment, JPMorgan anticipates a gross profit of $223 million, a decrease from the previous quarter due to falling fat prices and the absence of a one-time benefit from the Valley acquisition recorded in the fourth quarter. The Food segment is expected to see a quarter-over-quarter decline in gross profit to $104 million, down from $113 million, attributed to lower volumes. For the Fuel segment, excluding Diamond Green Diesel (DGD), the firm projects a gross profit of $29 million, which is a decrease from the previous quarter's $33 million, due to lower prices.
The EBITDA for DGD is estimated at $157 million at the 100% level, or $0.48 per gallon, which is an increase from the fourth quarter's $19 million, or $0.25 per gallon. This improvement is attributed to an easing of feedstock lag headwinds. However, JPMorgan notes that DGD is expected to continue facing lower-to-market (LCM) headwinds, although to a lesser extent than in the fourth quarter ($30 million in the first quarter versus $61 million in the fourth quarter).
JPMorgan's analysis includes an expected cash flow from operations (CFO) of approximately $174 million and capital expenditures (capex) of $125 million, resulting in free cash flow (FCF) of $49 million for the quarter. The firm also predicts no share buybacks for the quarter and an ending net debt to EBITDA ratio of approximately 4.0 times.
InvestingPro Insights
As investors consider JPMorgan's revised price target for Darling Ingredients, it's beneficial to look at the company's financial health and market performance through the lens of InvestingPro data and tips. According to InvestingPro, Darling Ingredients is trading at a low earnings multiple with a P/E ratio of 10.59, which is slightly adjusted from the last twelve months as of Q4 2023 to 10.33. This could indicate that the stock is undervalued relative to its earnings. Despite concerns about sales, analysts predict the company will remain profitable this year, a sentiment supported by its positive net income over the last twelve months.
InvestingPro data also shows that Darling Ingredients has a robust gross profit margin of 24.23% for the last twelve months as of Q4 2023, which may reflect efficient operations and a strong market position. Moreover, the company's liquid assets exceed its short-term obligations, suggesting financial stability and the ability to meet its immediate liabilities. On the performance front, the stock has seen a 1-month price total return of 4.1%, which could be of interest to short-term investors.
For those seeking a deeper analysis, InvestingPro offers additional tips, including insights on sales trends and dividend policies. There are currently 6 more InvestingPro Tips available for Darling Ingredients, which can be accessed by visiting https://www.investing.com/pro/DAR. To enrich your investment strategy, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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