The agriculture industry faced headwinds from record food prices in 2022. Although interest rate hikes have somewhat eased price pressures, the Russia-Ukraine war, supply tensions, and material costs could keep food prices high.
Given the volatile economic environment, USDA announced major program improvements, progress, and investments to support the agriculture sector and benefit American farmers, ranchers, and producers.
Agriculture Secretary Tom Vilsack, at a recent Farm Bureau convention, said, “Working together we can ensure American agriculture is as resilient as ever and will do so by implementing a holistic approach to emergency assistance, by lowering input costs through investments in domestic fertilizer production, and by promoting competition in agricultural markets.”
The U.S. agribusiness market is expected to grow 2.1% between 2018 and 2023 to reach $2.9 trillion. Moreover, despite high prices, the market is expected to grow marginally this year.
Furthermore, an increase in the global population is expected to trigger the need for improved agricultural production, ultimately creating a long-term demand for agricultural produce. Moreover, agriculture stocks are usually less volatile than the broader market due to stable demand.
Against this backdrop, it might be wise to add fundamentally strong agriculture stocks Archer-Daniels-Midland Company (ADM), Nutrien Ltd. (NTR), and CF Industries Holdings, Inc. (CF) now to garner good returns in 2023.
Archer-Daniels-Midland Company (ADM)
ADM procures, transports, stores, processes, and merchandises agricultural commodities, products, and ingredients worldwide. The company operates through three segments: Ag Services and Oilseeds; Carbohydrate Solutions; and Nutrition.
On November 2, 2022, ADM’s board of directors declared a cash dividend of 40 cents per share on its common stock, which was payable to shareholders on December 7, 2022. This marked ADM’s 364th consecutive quarterly payment and a record of 91 years of uninterrupted dividends, reflecting the company’s shareholder return ability.
On September 14, ADM and PepsiCo, Inc. (PEP) announced a 7.5-year strategic commercial agreement to collaborate on projects that aim to expand regenerative agriculture. The partnership is expected to reach up to 2 million acres by 2030. Moreover, reaching the partnership’s goals could eliminate 1.4 million metric tons of greenhouse gases. This should benefit ADM.
ADM’s trailing-12-month ROCE of 17.85% is 68.6% higher than the 10.59% industry average. Likewise, its trailing-12-month ROTA of 7.04% is 94.4% higher than the industry average of 3.62%.
For the fiscal third quarter that ended September 30, 2022, ADM’s revenues increased 21.4% year-over-year to $24.68 billion. Its adjusted net earnings increased 91.2% year-over-year to $1.05 billion. Additionally, its adjusted EPS came in at $1.86, representing a 91.8% increase from the prior-year quarter.
ADM’s revenue for the fiscal first quarter ending March 2023 is expected to increase 3.5% year-over-year to $24.47 billion. Street expects its EPS to come in at $1.70. It surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 15.6% over the past six months to close the last trading session at $85.31. It has gained marginally intraday.
ADM’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Growth and a B for Sentiment. It is ranked #2 out of 28 stocks in the Agriculture industry.
Click here to see the additional ADM ratings for Value, Momentum, Stability, and Quality.
Nutrien Ltd. (NTR)
Headquartered in Saskatoon, Canada, NTR is a crop inputs, services, and solutions provider, offering potash, nitrogen, phosphate, sulfate products, and financial solutions. In addition, it also distributes crop nutrients, crop protection products, seeds, and merchandise products.
On November 7, 2022, NTR announced the pricing of $500 million aggregate principal amount of 5.9% senior notes due November 7, 2024, and $500 million aggregate principal amount of 5.95% senior notes due November 7, 2025. NTR intends to use the net proceeds from this offering to reduce outstanding indebtedness under its short-term credit facilities, to finance working capital, and for general corporate purposes.
On November 3, NTR declared a quarterly dividend of $0.48 per share, paid to shareholders on January 13, 2023. This reflects the company’s strong cash generation ability.
NTR’s sales came in at $8.19 billion for the third quarter (ended September 30, 2022), up 35.9% year-over-year. Its net earnings increased 118% year-over-year to $1.58 billion. Moreover, the company’s adjusted net earnings per share increased 81.9% year-over-year to $2.51.
For the full-year 2022, the company expects its adjusted EBITDA to come between $12.20 billion and $13.20 billion. Adjusted net earnings per share is expected to come between $13.25 and $14.50 for the year.
Analysts expect NTR’s revenue to increase 7% year-over-year to $7.56 billion in the fourth fiscal quarter (ended December 2022). Its EPS is estimated to increase 8.3% year-over-year to $2.68 for the same quarter.
Over the past month, the stock has gained 4.6% to close the last trading session at $76.23. Moreover, it has gained 1.4% over the past five days.
NTR’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system.
NTR has a B grade for Value and Quality. Within the same industry, it is ranked #6.
To see the additional POWR Ratings for Growth, Stability, Momentum, and Sentiment for NTR, click here.
CF Industries Holdings, Inc. (CF)
CF produces and sells hydrogen and nitrogen products for energy, fertilizer, emissions abatement, and other industrial activities worldwide. The company mainly serves cooperatives, independent fertilizer distributors, traders, wholesalers, and industrial users.
On January 17, CF announced that it had signed a memorandum of understanding (MOU) with JERA Co., Inc., a Japanese energy generator, regarding the supply of up to 500,000 metric tonnes per year of clean ammonia beginning in 2027.
In addition, CF is constructing North America’s first commercial-scale green ammonia capacity at its Donaldsonville Complex, enabling up to 20,000 tons of green ammonia production beginning in 2024.
On October 12, 2022, it was announced that CF had entered into a commercial agreement with Exxon Mobil Corporation (XOM) to capture and permanently store up to two million metric tons of CO2 emissions annually from its manufacturing complex in Louisiana. This should support CF’s decarbonization goals.
On the same day, CF declared a $0.40 per share dividend on its common stock, paid to shareholders on November 30, 2022. This reflects on the company’s ability to pay back its shareholders.
For the fiscal third quarter that ended September 30, CF’s net sales came in at $2.32 billion, up 70.4% year-over-year. Its net earnings attributable to common stockholders increased 336.8% from the prior-year period to $438 million. Adjusted EBITDA increased 101.4% from the same period the prior year to $983 million.
For the year ended December 2022, Street expects CF’s revenue to increase 74% year-over-year to $11.37 billion. Its EPS is estimated to increase 181.7% year-over-year to $18.02 for the same period.
Over the past year, the stock has gained 27.6% to close the last trading session at $85.39. It has gained 0.9% intraday.
It’s no surprise that CF has an overall B rating, equating to Buy in our POWR Ratings system. It has an A grade in Quality and B for Value. It is ranked #7 within the same industry.
Click here to access additional ratings of CF (Growth, Momentum, Sentiment, and Stability).
ADM shares were unchanged in premarket trading Friday. Year-to-date, ADM has declined -8.12%, versus a 1.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi’s interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy.
Having earned a master’s degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors. More…
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