Ingredion Earnings: Strong Pricing Grains Drive Record Profits

We are maintaining our $120 per share fair value estimate for Ingredion INGR after updating our valuation model to incorporate the company’s first-quarter earnings. Our narrow moat rating is also unchanged.

Ingredion shares rallied nearly 5% at the time of writing on the company’s record first-quarter profits and management’s raised guidance for 2023. At current prices, we view Ingredion shares as fairly valued with the stock trading less than 10% below our fair value estimate. Accordingly, we recommend investors wait for a larger margin of safety in shares before considering an entry point.

While our long-term outlook for Ingredion is unchanged, we updated our near-term forecast for the company. We assume slower revenue growth but higher profits in 2023. While the majority of the company’s products are sold to the food and beverage industry, the company also sells industrial starches used in papermaking and corrugated box assembly, which saw a slowdown during the first quarter that was the major driver of volumes declining 6% during the quarter. As volumes for this business are likely to remain lower throughout 2023, we expect total volume declines for Ingredion, leading to slower revenue growth.

However, the larger driver for Ingredion is the company’s pricing, which was up 22% versus the prior-year quarter. Ingredion should benefit from falling corn prices in 2023 as the company’s specialty ingredients should generally maintain prices, leading to higher profit growth. As specialty ingredients become a larger proportion of total sales over time, this should drive more steady profit growth over the long term.