Andersons shares soar in March

Optimism for good crop season drives price to highest since ’06

3/20/2013

Speculation that this year’s crop-growing season will be a boom instead of a bust is causing investors to go gaga over The Andersons Inc.

Shares of the Maumee-based agribusiness have been surging all month long and this week reached their highest price since June 29, 2006, when the company announced a two-for-one stock split.

Up until the split nearly seven years ago The Andersons’ stock had soared, reaching $122.08 a share on May 3, 2006. But after the split, the stock had only topped $50 a share a few times in 2007 and again in 2012. On Monday it reached its highest close since the split, finishing at $51.52 a share on the Nasdaq. And on Tuesday, it went higher, closing at $52.10.

Officials of the company were reluctant to discuss the rise in stock price, indicating only that they were pleased.

But Eric Larson, an analyst with CL King & Associates, said the explanation for the sudden interest in The Andersons coincides with interest in all food-related stocks.

“I don’t think you can find a food stock right now that isn’t hitting all-time highs,” Mr. Larson said. “The food stocks have just been on fire for the last two or three months — and that includes the agribusiness companies, Archer Daniels Midland, Bunge [Ltd.], and The Andersons.”

Mr. Larson said investors are buying shares of The Andersons and other grain and food producers based on speculation that their profits are going to soar this summer and next fall.

“If we have a halfway decent crop-growing season and get back to some normalcy of crop-growing and crop production, that’s a net positive for … all the downstream producers” like The Andersons, Mr. Larson said. “The rising share price is all based on potential.”

Last year’s drought had a negative effect on grain purchasers and producers like The Andersons. The dry conditions pushed its shares down in the mid-$30 range for most of the summer and early fall.

But the Maumee firm’s share price began inching back up in December and reached the high 40s last month.

“When you don’t have a large crop, it’s a negative on the earnings,” Mr. Larson said. “But what the market is saying right now is the likelihood of having two consecutive droughts is pretty small.”

A second analyst with a Wall Street firm, who asked that his name not be used, said The Andersons’ share price is rising on two developments — the expectation of a stronger crop this year and a change in the fortunes of ethanol production.

Ethanol has been a boom or bust proposition, but in the last few months, ethanol producers like The Andersons have gotten their production margins up, their costs better in line, and, as a result, could show a profit this year, the analyst said.

In 2012, The Andersons’ Ethanol Group had an operating loss of $3.7 million, compared to operating income of $23.3 million in 2011. The company attributed the decline in income to weak gasoline demand, an oversupply of ethanol, and high corn costs caused by the drought.

Fahra Aslam, an analyst with Stephens Inc., issued a report last month that said the investment firm expects profits for grain and ethanol to rebound in 2013 because of a robust harvest it foresees for the 2013-14 growing-harvest season.

In her report, Ms. Aslam raised The Anderson’s expected share price target from $50 a share to $55 this year. Stephens also recently raised its rating of The Andersons stock to “buy” from a previous “hold.”

Contact Jon Chavez at: jchavez@theblade.com or 419-724-6128.