|
|
A Darling For Profiting From Waste
Posted: Oct 27, 2009 15:59 PM by Sham Gad
Not many people enjoy doing dirty work. Yet in reality, whether that dirty work comes on a farm or in a mine or a restaurant, it needs to be done. The fact that very few people enjoy doing it bodes well if you put on your investing cap.
IN PICTURES: Eight Ways To Survive A Market Downturn
The Name Fits
Darling International (NYSE: DAR) is indeed a darling business because it does what nobody else wants to do. Yes, this publicly traded company is in the business of collecting and handling animal byproducts and grease from restaurants and slaughterhouses. It also collects the grease for 10% of McDonald's resturants (NYSE: MCD). In addition, the company services Costco (Nasdaq: COST), Waffle House and Burger King (NYSE: BKC).
Boring Equals Growth
Darling has been in business for more than 125 years. Over the past decade, the company has been quickly buying up local shops that collect grease and animal fat to the point that it has become the largest such company in the U.S. And because you don't hear about new start-ups being interested in collecting grease, Darling has been able to capitalize.
Shares in Darling currently fetch $7, valuing the company at $588 million, not including about $22 million in net cash on the balance sheet. Over the past two years sales have leaped by nearly 100%, and net income has grown 10-fold from $5 million to over $50 million. Mention these numbers to anyone, and they would think you are talking about a new cutting-edge internet company, not a century-old collector of animal grease. Trading at a multiple of 23, shares don't appear attractive, but when you understand the long-term outlook for this business, you may want to give it a closer look. (For related reading, check out Stock-Picking Strategies: Value Investing.)
Taking Grease Into The 21st Century
Darling's business has become attractive to another new market: renewable energy. Apparently research has proven that making biodiesel fuel from animal fats renders a high-quality end product, far superior to using vegetable oil. And the U.S. government is favorable to renewable energy. The result is that Darling recently announced a deal with oil refinery giant Valero Energy (NYSE: VLO) to develop a "green" diesel plant in Louisiana.
Don't expect this news to propel Darling's share into the stratosphere. Even if the deal with Valero succeeds in every way, the demand for diesel is significantly above what could be produced by animal fats. Nonetheless, this is a very attractive new area for Darling that could lead to other such initiatives down the road.
Tremendous Growth Opportunity
In the meantime, the company's core business has tremendous growth opportunity ahead. As long as humans eat food, we will need to find a way to dispose of animals in the most environmentally sensitive way possible, and Darling has built a solid moat around itself since its founding in 1882. As a value investor, I love these simple, boring, low-competitive-threat type businesses. Another pullback in price, and Darling is a long-term bargain.
For related reading, check out Clean or Green Technology Investing.
By Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
Rate this Article:
Your Rating:
Overall Rating:
Vote Now!
MORE STOCK ANALYSIS
 Loading...
THE BEST OF INVESTOPEDIA
Loading...
|
CURRENT HIGH YIELD SAVINGS RATES
Rate data provided by
|
