The shares of this food repurposing company are rated 1.6 (Buy) by Wall Street Analysts. The company has strong cash flow and is reducing its debt.
Darling Ingredients (DAR)
From Technology & Opportunity
Darling Ingredients (DAR) is a global leader in creating sustainable food, feed, and fuel ingredients from bio-nutrients and is headquartered in Irving, Texas. In short, the company takes otherwise inedible meat and plant coproducts and turns them into usable ingredients, rather than disposing of them as waste. This includes millions of metric tons of inedible materials every year. Beef, poultry, and pork by-product streams are turned into usable products such as gelatin, tallow, feed-grade fats, feed meal, green energy, etc.
If you happen to be a vegan, this might not bode too well for you as a socially responsible investment off the bat, but consider that Darling is not actually creating any added demand—the company is only repurposing what others treat as waste.
Darling also provides cooking oil collection and grease trap services to the restaurant industry, rendering fat into fuel. The company also collects nutrient-rich residuals from industrial wastewater, repurposing it for land applications.
Darling’s business model is especially unique, as it’s the only publicly-traded company in its industry. It has about 200 processing plants across five continents and 10,000 employees. The company provides specialty solutions for customers in the pharmaceutical, food, pet food, feed, fuel, bioenergy, fertilizer, and food service industries.
Darling takes pride in being the world’s largest producer of sustainable natural ingredients.
It operates a number of name brands under its corporate umbrella. Below are just a few of Darling’s businesses:
• Rousselot—Provides gelatins, proteins, and collagen peptides that are used in food
and medicinal tablets.
• DAR PRO Bioenergy—Creates biofuels from animal fats and used cooking oils.
Also, renewable diesel at 12,000 barrels a day.
• CTH—Provides natural meat by-products used for insulin, sausage casings, and pet food.
• Peptan—Makes collagen peptides used in protein bars and beauty products.
• Sonac—Processes proteins, minerals, and fats for wet and dry pet food.
• Nature Safe—Makes organic fertilizer for gold courses, farms, and sports turfs.
• Terra Renewal—Provides soil-enrichment solutions and residual handling, so
farmers can meet environmental compliance.
Altogether, Darling operates 17 different brands.
Darling is coming off a strong first quarter for fiscal 2017. The company reported revenue of $880.1 million during the period, up 12.9% from the first quarter of 2016. Net income for the quarter was $5.8 million ($0.04 per diluted share) compared to a net income of just $1.1 million ($0.01 per diluted share) from the same period last year.
This growth can be attributed to two primary factors. First, Darling’s global raw material volumes grew 4.3% from the previous year. Second, the company was able to increase pricing across most of its product lines.
Darling completed two important acquisitions during the quarter. This includes a New York-based used cooking oil collector, which fits into Darling’s Newark collection route. It also includes a small, regional rendering company in Miami.
Darling also recently linked up with emerging biotechnology powerhouse Intrexon Corp. (XON) to begin construction on a large-scale, insect-based feed facility. Specifically, this will be the largest black soldier fly (BSF) larvae-production facility in the U.S. BSF larvae offer high nutrition for animal feed and will be targeted toward supplying livestock, aquaculture, and pet food markets. It’s a pretty compelling story when you consider that livestock feed (a $370 billion global industry) accounts for as much as 70% of food production costs.
Unlike traditional soybean meal and fish meal feedstock, BSF does not compete with human food sources. Its nutritional value is higher than that of dried soybean for both high-quality proteins and lipids. It is also more sustainable than menhaden fish meal, which has increased from $300 per ton to more than $2,000 per ton over the last three decades, due to overfishing. Completion of the facility is expected later in 2017, with full operating capacity by early 2018.
Darling’s cash position improved to $139.9 million, up from $114.6 million at the end of the previous quarter. Darling’s long-term debt ($1.7 billion) is its biggest risk, but the company is actively paying it down. The current debt ratio was 3.46 times in the first quarter, reduced from 4.41 times in the same period last year. The company is targeting $100 million of debt reduction for the full year.
Darling has a market capitalization of $2.47 billion, a price-to-earnings ratio of 24.4 and price to sales of 0.71. Adjusting for debt, this gives it an enterprise value to sales of 1.17, making it a fair value in today’s market. We rate Darling Ingredients Inc. a “Buy” under $16.50. The risk level is “Medium.”
Jason Stutman, Technology & Opportunity, www.angelpub.com, 877-303-4529, May 2017