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Darling Is A Decent Hedge Against A Biden Win, A Multibagger With More Renewable Diesel Visibility

Oct. 02, 2020 12:53 PM ETDarling Ingredients Inc. (DAR)NTOIF, NTOIY44 Comments
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Mare Evidence Lab


  • Darling's renewable diesel production, based on very sustainable feedstock relative to competitors, is both Dem-friendly while being not too opposed to big oil interests.
  • Moreover, the value proposition we discussed last time is still present.
  • With greater regulatory support, Darling's visibility could seriously increase in the marketplace, and it could become a renewable multi-bagger with more renewable diesel credibility.

Darling Ingredients (NYSE:DAR) is one of our more successful investments to date, as reflected by the performance report on our Top Idea article on it from a few months ago. Although the performance has already been good, we think there are still reasons to get involved in the stock. Firstly, it's a good hedge for the election outcomes, and secondly, it remains well below our price target and is still highly invisible to the analyst community. The fact is that the JV is still not being valued much at all, with a portion of the price recovery attributable to the base foods and feed business. With more regulatory support, the stock could get into momentum territory and end up being a multi-bagger for current holders.

Strong Q2 Justifies Price Recovery

Before we discuss the Darling prospects, it's worth mentioning that the Q2 performance was already pretty good. With Q1 demonstrating resilience at the beginning of lockdowns, Q2 was absolutely more resilient. In the feed and foods segment, sales rose, with no organic declines in operating profitability. Much of the recent price performance might be attributed to this segment of the business, which had some concerns due to the Chinese exposure in March and April.

(Source: DAR Q2 2020 Presentation)

Moreover, the fuel segment saw substantial increases in both sales and margins too, thanks in part to the resilience of regulatory diesel markets in the downturn. Moreover, the CAPEX reductions by other major oil players have also meant reduced labour costs in building out the new DGD Port Arthur plant.

Regulatory Support

Beyond reduced CAPEX requirements in upcoming construction thanks to the less competitive oil project development market, there is also the matter of regulatory support to boost the project IRRs. Regulatory support will need to improve to be able to support momentum

This article was written by

Mare Evidence Lab profile picture
Buy-side hedge professionals conducting fundamental, income oriented, long term analysis across sectors globally in developed markets. Please shoot us a message or leave a comment to discuss ideas.DISCLOSURE: All of our articles are a matter of opinion, informed as they might be, and must be treated as such. We take no responsibility for your investments but wish you best of luck.

Analyst’s Disclosure: I am/we are long DAR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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