Shares of The Andersons, Inc. ANDE have declined around 27% in the past three months, wider than the industry’s loss of 17%. This can be attributed to unfavorable margin conditions in the Ethanol Group and delay in plant construction.
Notably, the stock has seen the Zacks Consensus Estimate for current-year earnings being revised 10% downward over the last 60 days, reflecting analysts’ pessimism. Given the headwinds facing the company, we believe the stock will remain under pressure in the coming quarters.
What’s Pulling the Stock Down?
Andersons’ Ethanol Group witnessed decline in margins in the past couple of months and the company does not expect any improvement in the near term. The group has comparatively lesser margins hedged for fourth-quarter 2018. The company remains concerned about margins for the balance of 2018 and in 2019. Andersons expects the Group’s fourth-quarter fiscal 2018 results to be somewhat lower than fourth-quarter 2017. In addition, the Ethanol Group has a delay of 60 days in the progress of the construction of the plant building with ICM, Inc. in Kansas. The delay was caused by near-record rainfall at the site which may delay its start-up, thus impacting the group's 2019 results.
Notably, Andersons’ Plant Nutrient Group's third-quarter 2018 results reflected a decrease in sales volume in primary nutrients and lower margins in specialty nutrient products. While primary product margins have improved, the outlook for the Group remains challenged.
Further, Andersons’ Zacks Rank #4 (Sell) only reaffirms that it is plagued with several headwinds at the moment. The unfavorable rank implies that investors should get rid of the stock from their respective portfolios. In fact, stocks witha Zacks Rank #4 or 5 (Strong Sell) are likely to underperform the broader market over the next one to three months.
Will the Stock Rebound?
Andersons expects that its 2018 net income will be significantly better than the adjusted 2017 results. It will benefit from a substantial decline in its effective tax rate in 2018. The enactment of the tax reform in December 2017 has reduced the federal income tax rate from 35% to 21%.
Andersons made significant progress on its cost-savings and productivity initiatives in the first quarter. The company is making good progress on the latest run-rate additional savings goal of $7.5 million this year, which is expected to be achieved by the end of 2018.
We believe these factors will eventually benefit Andersons’ results and drive its share price. However, the stock will remain under pressure due to the above-mentioned headwinds for the time being.
Stocks to Consider
Some better-ranked stocks in the same sector are CF Industries Holdings, Inc. CF, W.R. Grace & Co. GRA and Israel Chemicals Shs ICL. All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
CF Industries has a long-term earnings growth rate of 9.5%. The stock has witnessed upward earnings estimate revision of around 13% over the past three months.
W.R. Grace has a long-term earnings growth rate of 6%. Itwitnessed upward earnings estimate revision of around 1% over the past three months.
Israel Chemicals has a long-term earnings growth rate of 12%. It witnessed upward earnings estimate revision of around 2.8% over the past three months.
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