This was one of those quarters where BG’s risk management process “didn’t get it exactly right”. This goes directly to one of the more consistent comments that we hear from investors regarding the company – that the company’s risk management activities can make an entire quarter’s earnings go away. That appears to have been the case this morning as the company reported EPS of $0.57 per share versus consensus of $2.36.
While these quarter do tend to pop up every once awhile with BG, we think that the company is likely positioned for a solid 2013 and we continue to like the theme of global agricultural processing – getting the crop from where it’s grown to where it’s needed.
In the short-term however, we continue to believe that ADM represents the superior way to play that theme, for a few reasons:
- More leverage to the US crop and the potential for higher yields and increased acreage relative to ‘12
- Name still remains under owned
- Valuation support on a price/book basis
Longer-term, we have concerns about the size of the capital investment that ADM has made in corn ethanol, a business that we believe may have long-term structural issues, preferring in this instance BG’s exposure to sugar ethanol. However, in the wake of a very disappointing earnings result at BG versus a modestly positive result (admittedly against very low expectations) at ADM, we think ADM makes more sense in the near-term (1-3 months).
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HEDGEYE RISK MANAGEMENT, LLC