Jefferies Comments On Archer-Daniels Midland As Ethanol & Corn Prices Rise

Jefferies sees Archer Daniels Midland's ADM downside share price risk minimal, but key catalysts including increasing ethanol prices, ethanol profitability and ADM processing volume growth have little near-term upside potential. An already tight end stocks position, uncertainty surrounding crops in Argentina, very strong Chinese demand and the first global coarse grain supply shortfall in 4 years have combined to drive approximately a 10% run in corn & soybean prices over the last 4 weeks. Jefferies' thoughts on ADM's key share price drivers, revenue & margin drivers and valuation follow. Our research indicates that ethanol profit, ethanol price & system processing volume have historically been key ADM share price drivers. The results are surprising given that ethanol has represented, on average, below 10% of consolidated segment EBIT over the last 5 yrs. ADM shares, trading at 1.3X P/BV, are not expensive. Jefferies remains on the sidelines, however, given its view that key share price drivers are unlikely to materially lift the stock in coming months. ADM closed Monday at $30.40