We came across a bullish thesis on Darling Ingredients Inc. (DAR) on Substack by Elliot. In this article, we will summarize the bulls’ thesis on DAR. Darling Ingredients Inc. (DAR)'s share was trading at $36.09 as of Feb 28th. DAR’s trailing and forward P/E were 20.86 and 13.50 respectively according to Yahoo Finance.
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Darling Ingredients (DAR) stands as a global leader in converting animal byproducts and organic waste into high-value ingredients across feed, food, and fuel segments. As the world’s largest independent renderer, the company processes over 12 million metric tons of raw material annually, sourcing waste from slaughterhouses, grocery stores, and restaurants. This scale advantage allows it to maintain a dominant market position, particularly in its Feed Ingredients segment, which accounts for the majority of its revenue. The ability to flexibly shift fats between animal nutrition and renewable energy markets provides a unique pricing advantage, optimizing margins across commodity cycles. Despite recent volatility in fat prices, which compressed margins in early 2024, the company's indexed pricing model stabilizes gross margins over time. Strategic acquisitions like Valley Proteins and Brazil’s FASA Group have strengthened Darling’s raw material access and expanded its geographic footprint, reinforcing its competitive position in both feed and biofuel markets. While commodity price fluctuations create short-term challenges, management expects a more favorable supply-demand balance in 2025, setting the stage for improved profitability.
One of Darling’s key advantages is its integration with the renewable energy market, particularly through its Diamond Green Diesel (DGD) joint venture, which processes waste fats into biodiesel. This strategic alignment allows Darling to pay more for raw materials than competitors lacking biofuel processing capabilities, ensuring a steady supply of feedstocks. With global demand for renewable diesel rising, Darling’s vertical integration provides a clear competitive edge. Despite temporary headwinds from declining fat prices, the company’s long-term fundamentals remain strong, as regulatory trends increasingly favor sustainable waste recycling and biofuel production.
Darling’s Food Ingredients segment, contributing 20–25% of revenue, offers higher-margin, value-added products such as gelatin, collagen peptides, and edible animal fats used in food, pharmaceuticals, and health supplements. Gelatin and collagen have seen strong demand, particularly in the health and wellness market, where collagen peptides are increasingly used for skin, joint, and metabolic health. With its Rousselot brand as the world’s largest gelatin and collagen producer, Darling further strengthened its position through the $1.2 billion acquisition of Gelnex, expanding its production capacity in Latin America and Asia. This acquisition enhances supply chain efficiencies and secures raw material access, reinforcing Darling’s leadership in the global gelatin market. Unlike the more cyclical feed and fuel segments, the food segment benefits from steadier demand and pricing power, making it a stable cash flow generator. While revenue softened in 2024 due to post-pandemic normalization, management expects a rebound driven by strong end-market demand and operational efficiencies.
The gelatin and collagen markets are oligopolistic, with Darling’s Rousselot-Gelnex combination holding the largest share alongside Gelita AG, PB Leiner, and Nitta Gelatin. The market has historically been disciplined in capacity expansions, ensuring stable pricing. However, emerging alternatives like plant-based and bioengineered gelatin present a potential long-term disruption, though they currently face cost and scale limitations. In collagen peptides, competition comes from specialty ingredient companies, pushing Darling to invest in R&D for differentiated peptide formulations. Given its scale, integration, and cost advantages, the company is well-positioned to maintain its leadership in food ingredients.
Darling’s business model, which transforms waste into essential products across multiple industries, creates a structurally resilient cash flow profile. While commodity cycles introduce near-term volatility, its ability to shift raw materials between feed, food, and fuel applications provides flexibility in managing margins. Its history of strategic acquisitions has further cemented its market leadership and global reach, ensuring long-term growth. As sustainability trends and global protein consumption continue to rise, regulatory tailwinds should further support Darling’s business model, despite occasional commodity-driven headwinds.
From a valuation standpoint, Darling offers an attractive investment opportunity. Historically, DAR has traded at an EV/EBITDA multiple between 7x and 10x, depending on market conditions. Using its 2023 peak EBITDA of $1.61 billion and an 8x multiple, the enterprise value reaches $12.9 billion. After factoring in $4 billion in debt, the resulting equity value is $8.9 billion, translating to $59 per share. A more conservative 2024 estimate of $1.16 billion EBITDA at a 7x multiple would imply an enterprise value of $8.1 billion, with an equity valuation of $4.1 billion, or $27 per share. However, this low-end multiple undervalues DAR’s diversified earnings streams and strong market position. Agricultural processors trade at 6–8x EBITDA, while specialty ingredient firms command 10–12x, and renewable fuel peers like Neste trade at 12–15x. A sum-of-the-parts approach suggests a fair multiple of 8–9x, reflecting its mix of commodity-exposed and specialty segments.
For 2025, DAR projects EBITDA between $1.25 billion and $1.3 billion, likely a conservative estimate. Applying a 7x multiple to the lower end yields an enterprise value of $8.7 billion. With anticipated debt reduction to $3.6 billion, the resulting equity value would be $5.1 billion, or $34 per share. If EBITDA reaches $1.3 billion at an 8x multiple, the price would rise to $45 per share. The stock currently trades at $36, indicating a potential opportunity for long-term investors.
A bullish scenario, driven by a recovery in global fat prices, strong DGD diesel spreads, and rising collagen demand, could push EBITDA beyond $1.8 billion. At a 9x multiple, enterprise value would reach $16.2 billion, with equity at $13.2 billion, or $88 per share. Conversely, a bear case with sustained headwinds—such as a global recession, weaker margins, and regulatory rollbacks—could see EBITDA stagnate at $1.1–1.2 billion, with an equity value of approximately $27 per share.
The base case assumes EBITDA growth to $1.5 billion by 2027, with DGD’s SAF expansion and improved margins. At an 8x multiple, enterprise value would be $12 billion, with a $60 per share equity valuation. If DAR trades in the low $30s, it presents a strong buying opportunity, while the low-to-mid $50s would reflect fair value, with further upside toward $60+. The stock’s asymmetric risk/reward profile suggests significant potential upside if fundamental tailwinds materialize.
Darling Ingredients Inc. (DAR) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 40 hedge fund portfolios held DAR at the end of the fourth quarter which was 34 in the previous quarter. While we acknowledge the risk and potential of DAR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DAR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
