Best stock to invest in – Darling Soldiers | Alternative Energy Stocks

Best stock to invest in

by Debra Fiakas CFA

This week Darling Ingredients

NYSE) reported financial results for the quarter ending December
2015, demonstrating management’s collective ability to manage
margins in a period of low inflation.  The fourth quarter 2015
top-line was $809.7 million, providing $84.4 million in net income
or $0.52 per share.  Revenue was 19.1% lower than the same
period last year, but net income increased by 20.7%
year-over-year.  Weak commodity prices led to lower sales
volumes and selling prices that translated into lower year-over-year
revenue.  At the same time the commodity market compression
also reduced raw materials costs, increasing profit margins.

The Company also benefited from its investment in the Diamond Green Diesel
joint venture with Valero (VLO:  NYSE), by capturing value in
the fats supply chain that might have otherwise been lost to Darling
as an animal fats recycler.  The joint venture is part of
Darling fuel ingredients segments, which delivered 8.1% of total
sales to the mix in the fourth quarter and an exceptional 37.9% of
operating income.

Earnings in the December quarter far outpaced expectations for a
two-bit bottom line.  It was the first upside surprise
delivered by the Company in over a year.  Consequently, under
higher than average trading volume, the stock gapped higher in the
first day of trading following the earnings announcement and
conference call.  The stock gapped higher again in the final
day of trading last week, moving well above a line of price
resistance that we believed was developed through historic trading
volumes at the $11.50 price level.

Yet exceptional profit is
not the only thing sparking investor interest in Darling
Ingredients.  Last week Darling announced a new joint venture
with Intrexon Corporation
to develop black soldier flies for fish and
poultry feed.  Concurrently, Intrexon acquired EnviroFlight LLC and its
proprietary fly husbandry processes as part of the effort to
cultivate black soldier fly larvae for fish and poultry feed. 
The product is expected to be highly marketable given the merits of
larvae over wild fish or other protein by-products for these
markets.  Successful introduction of fly larvae as a preferred
feed is also expected to reduce threats to fishing waters from
over-fishing and pollution.

There were numerous questions during the earnings conference call
about the joint venture and the apparent expansion of interest on
the part of Darling to expand beyond feed by-product recycling to
new feed production.  Randall Stuewe related the Darling’s
history of work with EnviroFlight as a development partner with the
fledgling protein producer.  The relationship has been
formalized into a joint venture with EnviroFlight’s new owner,

Stuewe stated clearly that population growth is outpacing the
ability of pastures and fields to produce enough animal feed
protein.  In particular new sustainable sources of protein are
needed for poultry and aquaculture to reduce pressures on other feed
sources.  Darling has committed approximately $3 million in
capital to building a pilot plant for cultivation of black soldier
fly larvae.  Although a site has not yet been determined,
construction could still begin in 2016.  Ultimately, each
production facility could cost between $4 million to $5 million,
with additional capital required to begin operation.

The black fly project adds a new dimension to Darling Ingredients
business model, which has to this point been largely as a recycler
of food by-products not as a cultivator of original feed. 
Darling Ingredient’s management culture has proven that it is able
to handle a wide range of business challenges from tough pricing
environments, to large, multi-faceted acquisitions and joint
ventures.  There is plenty of reason to have confidence in
Darling’s soldiers.

Debra Fiakas is the Managing Director of
Crystal Equity
, an alternative
research resource on small capitalization companies in selected

Neither the author of the Small Cap
web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein. Crystal Equity
Research has a Buy rating
on DAR
and Darling Ingredients is included in the Biofuel

Group of the Beach Boys Index of alternative energy
developers and producers.

– Best stock to invest in

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