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ADM – Market expectations are for record-high Uniform ROA, but management’s concerns about ROIC growth and their savings targets imply this may be unwarranted
October 23, 2017
Archer-Daniels-Midland Company (ADM:USA) currently trades above historical averages relative to UAFRS-based (Uniform) Assets, with a 1.0x Uniform P/B, implying somewhat bullish expectations for the firm. However, given management’s concerns about profitability, this may be unwarranted
Specifically, management appears concerned about the sustainability of ROIC growth, and may lack confidence in their ability to achieve their run-rate savings targets for 2017 and 2018, as well as their ability to meet operating cash flow expectations. Should the firm fail to drive Uniform ROA to record-highs, as management sentiment suggests, multiple compression and equity downside would be warranted