Darling Ingredients’ Sales, Earnings Soar On Clean Energy Demand

Darling Ingredients NYSE: DAR is a company that works magic: It transforms foodservice waste into fuel and other products.

As numerous states, as well as the federal government, are implementing new clean energy targets, demand for a service like Darling’s is flying high.

The Irving, Texas-based company starts with materials such as meat and bone waste from slaughterhouses, used cooking oil from restaurants, and other waste from restaurants, bakeries and other food producers.

Darling takes those unwanted waste products and transforms them into fertilizers, pet foods, soaps, livestock feed and renewable diesel fuel, among other items.

With new government initiatives for clean and renewable energy, demand for waste materials is growing fast. Demand for Darling’s rendering services is also soaring.

The company reported its fourth-quarter and full-year results on March 3.

Fourth-quarter earnings came in at $0.45 per share, down 51% from the year-earlier quarter, but topping analyst estimates of $0.41 per share.

Revenue of  $1.02 billion marked a year-over-year increase of 19%. Revenue also beat the consensus estimate of $905.2 million.

 Shuttered Biodiesel Plants

In its earnings call, the company discussed its 50% partnership in Diamond Green Diesel (DGD), the largest renewable diesel manufacturer in North America. Darling shifted its attention to this industry sector in 2020, closing biodiesel plants in Montreal and Kentucky in favor of green diesel technologies.

“Our action does free up valuable low carbon feedstocks that can be sold to DGD and also helps us focus our energy on making DGD the best low-cost renewable diesel producer in the world,” said CEO Randall Stuewe in the earnings call.

Darling did not issue earnings or revenue guidance for the current quarter or year.

However, John Bullock, the company’s executive vice president for the North American Specialty Businesses offered a clue about one business line that could grow in coming years.

“Jet fuel is an interesting market. We see it as a developing market. It's probably a few years off,” Bullock said. “There is a lot of conversation about sustainable jet at this point in time. We believe that will be a product in our portfolio as we move forward.”

 Next Up: Jet Fuel?

He noted that a jet fuel product was unlikely to be developed for another two to three years.

“Because at this point in time, we have more than enough demand on the roadside for any product that we can make. But we do believe the sustainable jet is going to be a key product in the Diamond Green Diesel portfolio at some point in time as we move through the next few years,” Bullock said.

Since the earnings report, several analysts either initiated coverage with positive ratings, upgraded the stock or boosted the price target.

Analysts expect earnings of $2.40 per share this year, up 22% over 2020.

For next year, analysts pegged earnings at $4.27 per share, which would mark a 78% year-over-year gain.

The stock is up 18% since its earnings report.

Cleared Cup-With-Handle Base

A glance at the monthly chart reveals a picture of perfection. The stock is working on its twelfth month in a row of gains.

One possible concern for investors looking for an entry point: The stock formed a cup-with-handle base, starting with the broad market pullback last February. It cleared its handle buy point of $26.97 on July 17 in above-average trading volume.

Darling’s up/down volume ratio over the past 50 sessions is 1.4, meaning that trading volume to the upside was higher than on the downside.

The stock trended above its 10-week moving average ever since. It’s made some slight pullbacks along the way but always regained upside momentum.

The problem with buying overextended stocks, even those with strong prospects, is that institutional investors could take profits, sending the stock lower, even temporarily.

That could mean getting shaken out of the stock, or simply sitting through the frustration of a pullback when you bought the stock at a higher price.