Andersons Inc (NASDAQ: ANDE) stock rallied 15.75% on September 14th, 2020 (Source: Google finance) after BMO Capital turns bullish & upgraded the firm to Outperform with a target price of $24, on the back of a significant improvement in fundamentals and operational efficiencies. This could enable ANDE to post over its $300mm EBITDA target in F2021 with ongoing opportunities in F2022. As per the broker, the risk/reward tradeoff is more than three to one to the upside, as the reasonable upside potential is $33 (+97%). This is based on assumption of estimates of $320M EBITDA/$2.05 EPS and 6.5X to 7.0X EV/EBITDA, while the downside risk is $12 (which reflects decline of 25-30%) assuming a P/E of around 13X.
Meanwhile, the company has recently declared the cash dividend of 17.5 cents ($0.175) per share for the fourth quarter of 2020, which is payable on October 22, 2020, to shareholders of record as of October 1, 2020.
Moreover, the company is targeting total expense reductions of $30 million in 2020, with about half of those savings projected to be permanent in nature. The company expects further general and administrative cost reductions that will be realized beginning in early 2021. The company anticipates to spend approximately $100 million on capital projects in 2020 after averaging more than $200 million over the last three years.
On the other hand, the company had announced strategic business structure and senior leadership changes. The Trade Group and Ethanol Group will get combined and will be led by President Bill Krueger, who was formerly president of the Trade Group. Jim Pirolli, who was the Ethanol Group president, has been appointed senior vice president of the combined group, which will enable him to assume expanded responsibilities. The Plant Nutrient Group and Rail Group will also be combined and led by Joe McNeely, who was formerly the president of the Rail Group.
Additionally, Trade Group delivered lower adjusted results due to low income from storage assets. The Trade Group reported adjusted pretax income of $1.4 million for the quarter compared to adjusted pretax income of $25.8 million in the second quarter of 2019. The 2019 results were positively affected due to corn and wheat basis appreciation caused by the poor 2019 planting season and concerns about adequate grain supplies. The group’s return on its Eastern Corn Belt assets was hurt by the small 2019 harvest and COVID-related decreases in demand, which resulted in compressed margins, minimal basis appreciation and lower originations.