Assessing Darling Ingredients (DAR) Valuation After Q4 Results Show Revenue Growth But Weaker Profitability

Darling Ingredients (DAR) has come into focus after reporting fourth quarter and full year results, with higher sales but much lower net income and earnings per share. This has sharpened attention on the stock’s recent re rating.

See our latest analysis for Darling Ingredients.

Those results landed after a strong run in the shares, with a 30 day share price return of 23.26% and a 90 day share price return of 43.93%. The 1 year total shareholder return of 36.62% contrasts with a 3 year total shareholder return of 16.74% and a 5 year total shareholder return of 21.97%, suggesting recent momentum has picked up after a weaker longer term experience for shareholders.

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So, with revenue moving up but full-year net income and earnings per share far lower, and the share price already sharply higher over recent months, is Darling Ingredients now a value opportunity, or is the market already pricing in future growth?

Most Popular Narrative: 11% Overvalued

Against Darling Ingredients' last close of $52.68, the most followed narrative points to a fair value of about $47.46, so it sees the recent share price strength as running a bit ahead of its long term assumptions.

Policy changes favoring U.S.-sourced renewable diesel feedstocks (higher domestic fat prices, reduced foreign competition) and increasing U.S. biofuel mandates are expected to structurally expand demand and improve pricing power in Darling's Feed and Fuel segments, which should drive higher revenue and margin expansion through 2026 and beyond.

Read the complete narrative.

If you want to see how that policy driven story translates into numbers, the full narrative sets out a detailed path for revenue, margins and earnings that underpins its valuation view, and it does so using a discount rate of about 7% and projected profitability that is very different to what the latest reported 1% margin might suggest.

Result: Fair Value of $47.46 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, that story could be knocked off course if regulatory decisions around renewable fuel credits remain uncertain for a longer period, or if higher feedstock costs continue to squeeze segment margins.

Find out about the key risks to this Darling Ingredients narrative.

Another View: DCF Points to Deep Undervaluation

The narrative based fair value of about $47.46 suggests Darling Ingredients is 11% overvalued, but our DCF model paints a very different picture. Based on those cash flow assumptions, fair value is estimated at $166.57 per share, which is significantly higher than the current $52.68 price. Which framework do you find more convincing for evaluating long term cash generation?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Darling Ingredients for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 51 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With mixed signals around value and growth potential, do you feel the story is balanced enough to act? It might be worth looking through the full set of numbers and assumptions now so you can weigh the trade off between the concerns and the opportunities that other investors see, especially given there are 2 key rewards and 4 important warning signs.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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