This is a darling of a stock. In fact, Darling (DAR) is one of the top ten stocks in my Emerging Growth portfolio right now. This unique company is performing strongly in all the right areas right now. The best performing segments of the stock market so far in 2008 have been agricultural and green, environmentally friendly companies. And Darling operates right in the sweet spot of both.
The company is currently providing juicy yields. DAR's first line of business is the rendering division that collects animal by-products from butchers and meat-packing houses. These by-products are then processed into oils and proteins that distributed and sold throughout the agricultural, leather goods, and chemical industries.
The company's second line of business is the restaurant division that collects used cooking oil and grease traps, which it then converts into usable products such as high-energy animal feed and certain types of industrial oils.
Sounds awful, doesn't it? The results, however, are much easier to stomach. The company reported record earnings in 2007 of $44.5 million, aided by an increasing global interest in biofuels and increased demand from China. Revenues were up well over 50% and profits swelled by more than 800% as Darling began to benefit from the integration of prior acquisitions.
The company expects the growth to continue into 2008 and beyond. In its earnings report, company officials noted that the pricing for DAR's products was lagging behind other grains and oils in world markets. The prices for its fats were flat in 2007 and the protein prices had improved only slightly. Now, as demand for its end products, especially animal feed, continues to grow, pricing for Darling's feed and oil products will improve. That means higher margins and better earnings ahead for the company!
DAR also issued an announcement that is expected to positively impact sales and earnings in the years ahead. Darling has always conducted business with McDonalds at some of its restaurant locations. Recently, to increase the number of locations DAR serves and to develop a stronger relationship with the largest fast food company in the United States, the company underwent a two--year process to acquire vendor certification and acceptance.
How significant is this certification? In the words of Darling CEO Randall Stuewe, "It is an entry to the dance and will allow us to develop the locations we do not already serve. So it's very positive and a difficult ticket to earn." Since the oils and greases collected from the sites are recycled into high demand high margin animal feed products, this new and improved relationship could bring huge profits to Darling in the years ahead.
Rendered animal products and used cooking oils do not really sound like an appealing business much less a hot stock that can offer us a positive return on our investment. Darling is not the type of company most people would think of as an acceptable place to invest.
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