Citi trims DAR target to $46, flags risk of share dip with guidance reduction

On Monday, Citi adjusted its outlook on Darling Ingredients (NYSE:DAR), reducing the price target to $46.00 from the previous figure of $48.00, yet the firm maintained a Buy rating on the stock. The adjustment comes ahead of the company's expected third-quarter earnings report, which is scheduled for Thursday, October 24.

Darling Ingredients is anticipated to announce its earnings for the third quarter of 2024 soon, and there are indications that the figures may not align with current market expectations. Analysts are predicting that the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) for the third quarter could fall short of the consensus compiled by Visible Alpha.

In addition to the potential earnings miss, the company is also expected to revise its EBITDA guidance for the year 2024 downward. The current guidance stands at $1.3-1.4 billion, but the analyst projects that the actual figure might be less than $1.2 billion. This anticipated reduction in guidance could impact the company's stock performance.

Despite the potential for a guidance reduction, which may not come as a surprise to investors, there is a possibility that the magnitude of the decrease could still exert downward pressure on the shares. The analyst suggests that this could serve as a clearing event, potentially influencing the stock's trajectory following the announcement.

In other recent news, Darling Ingredients reported a robust second quarter with an EBITDA of $274 million, net income of $78.9 million, and net sales totaling $1.5 billion.

The company's joint venture, Diamond Green Diesel (DGD), secured a contract to supply sustainable aviation fuel to John F. Kennedy International Airport, aligning with plans to upgrade nearly half of its 470 million gallon annual capacity to sustainable aviation fuel by 2024.

In leadership developments, Darling Ingredients appointed Randy Hill as an independent director to its board, enhancing its financial analysis and global reporting capabilities. Meanwhile, board member Michael E. Rescoe retired, marking the end of his significant contributions to the company's growth and global expansion.

Investment firm Baird maintained a positive outlook on Darling Ingredients, reiterating an Outperform rating. Despite mixed commodity market conditions, Baird's analysis suggests an anticipated increase in Low Carbon Fuel Standard (LCFS) credits and expectations for a weaker third quarter for DGD.

TD Cowen revised its price target on the company's shares to $43.00, maintaining a Hold rating. Analyst assessments consider potential legislative changes, fluctuating commodity prices, and the company's future earnings prospects.

InvestingPro Insights

Recent data from InvestingPro sheds additional light on Darling Ingredients' financial situation. The company's market capitalization stands at $5.87 billion, with a P/E ratio of 17.6 based on the last twelve months as of Q2 2024. This valuation comes amid a challenging period for the company, as evidenced by a 13.44% decline in revenue over the same period.

InvestingPro Tips highlight that analysts anticipate a sales decline in the current year, aligning with Citi's cautious outlook. Additionally, net income is expected to drop this year, which could explain the potential downward revision of EBITDA guidance mentioned in the article.

On a positive note, Darling Ingredients maintains a strong liquidity position, with liquid assets exceeding short-term obligations. This financial stability could provide a buffer as the company navigates through the anticipated earnings challenges.

For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips for Darling Ingredients, providing deeper insights into the company's financial health and prospects.

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