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Prudential downgraded Archer-Daniels-Midland (ADM
) to neutral from overweight.
Analyst John McMillin says the neutral rating is more appropriate, as investor sentiment has turned very positive just as ethanol prices seem set to drop.
He is reluctant to raise his $22 price target as earnings per share momentum is slowing in calendar year 2005 due, in part, to the recent drop in oil prices. He maintains estimates, but the upside to calendar year 2005 estimates looks less likely with the LIFO reserve largely used up.
McMillin sees a meaningful dividend increase announced in January, and more good news is possible if high-fructose corn syrup prices hold, but there are offsets as Archer-Daniels-Midland loses margins on lysine and their 1.2 billion-gallon ethanol business. He notes capital spending plans also may be moving up.