Associated Press
ADM Stock Sinks After Ratings Downgrade
04.06.2005, 12:55 PM

Archer Daniels Midland Co. stock dropped Wednesday after an analyst warned the ethanol business faced industry overcapacity.

ADM shares fell $2.64, or 11 percent, to $21.36 in midday trading on the New York Stock Exchange. The 52-week high of $25.37 was set March 7, while the year-low of $14.95 was set July 30.

ADM, Decatur, Ill., makes food additives and ingredients and is one of the world's largest processors of soybeans, corn, wheat and cocoa.

In a research note, FTN Midwest Securities Corp. Wednesday downgraded ADM shares to "sell" from "neutral," and it set a new price target of $18 based on a revised earnings outlook.

"The primary issue driving our downward revision is that the expansion in the ethanol industry exceeds demand," said the FTN research note written by analyst Christine McCracken.

"Year-to-date ethanol prices have fallen 36 percent and prices are down 28 percent year-over-year," the note said. "While ADM contracts a majority of its ethanol (processing) and should not see the immediate impact of these declines, ultimately this deterioration should factor into lower BioProduct results."

FTN cut its earnings estimate for the fiscal year ending in June to $1.57 a share from $1.62. It also cut its 2006 earnings outlook to $1.30 from $1.40.

ADM's BioProducts business provides 23 percent of the company's earnings before interest and taxes, meaning "the magnitude of the decline is disconcerting and should contribute to disappointing earnings over the coming quarters," said FTN.

ADM didn't return a call seeking comment.

FTN said its analysts' compensation isn't tied to their specific recommendations or views in research reports.

FTN makes a market in ADM shares and said it has or may seek investment banking business from the company.