Piper Sandler’s Top Technical Stock Picks: 20 Best Stocks

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8. Darling Ingredients Inc. (NYSE:DAR)

Number of Hedge Fund Holders In Q2 2024: 37

Darling Ingredients Inc. (NYSE:DAR) is a food and fuel products raw materials company. It provides products to enable pharma, food, fuel, and other firms to make their products. Consequently, as Darling Ingredients Inc. (NYSE:DAR)’s customers see their sales grow during a robust economy, the firm’s shares are down by 26% year to date. These troubles have also been exacerbated by a slowdown in the renewable industry market, which provides Darling Ingredients Inc. (NYSE:DAR) with key tax credits. However, the firm’s scale that allows it to command 17% of the global market share means that once industrial activity picks up, Darling Ingredients Inc. (NYSE:DAR) can experience significant tailwinds. Additionally, disputes over whether the 45Z tax credit should apply to international feed stocks as well could make a sizeable impact on Darling Ingredients Inc. (NYSE:DAR)’s income statement since bioenergy products account for roughly 10% of the firm’s revenue as of H1 2024.

Southern Sun Asset Management mentioned Darling Ingredients Inc. (NYSE:DAR) in its Q2 2024 investor letter. Here is what the fund said:

Darling Ingredients Inc. (NYSE:DAR) is the largest publicly traded company turning edible by-products and food waste into sustainable products and a leading producer of renewable energy. DAR was the top detractor in the Small Cap strategy in the second quarter. The stock has struggled after a difficult reset period in the third quarter of last year, as fears regarding new industry supply of renewable diesel and the lack of government support have increased. Over time and through thoughtful leadership and capital allocation, the company has built a vertically integrated growth engine with attractive returns on capital while consolidating the industry and driving innovation. After a strong year of EBITDA growth in 2023, we expect 2024 to be an important year of transition before growth resumes over the next 2-3 years, as recent M&A and growth capex drive deleveraging and free cash flow. The company is currently constructing sustainable aviation fuel (SAF) capacity expected to come online in 4Q24 and is evaluating further SAF expansion for the future, as growth and incentives in that market provide significant margin expansion and return on investment. The valuation is compelling, in our opinion, based on multiple scenarios and valuation methodologies. We spent time with local leadership in Brazil during the second quarter – reviewing significant investments that have been made over recent years as well as touring important production facilities. Brazil is the most important international market for Darling where they have consolidated the industry and enjoy very strong market share. While these investments have put some strain on the balance sheet in the near term, we believe the growth in cash flow and return on invested capital will deliver improved stock performance in the years ahead.”

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