Why Darling International Inc. Shares Dropped

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Darling International fell 4% today after Wedbush downgraded the food industry waste recycler from "outperform" to "neutral."

So what: Along with the downgrade, Craig Irwin lowered his price target to $20 (from $26), representing about 7% worth of downside to Friday's close. While contrarians might be attracted to Darling's recent share-price slide, Irwin believes that the upside remains limited given the demand and pricing headwinds working against the company.

Now what: Wedbush sees Darling's risk/reward trade-off as rather unattractive at this point. "We are downgrading shares of Darling to NEUTRAL from OUTPERFORM following the release of the EPA's '14 Biodiesel volume mandate (RVO) that was well below our base scenario," noted Wedbush. "In our view, the Biodiesel RVO was likely victim of structural problems with the ethanol mandates at unachievable levels, leaving room for future positive changes. Falling biodiesel demand should directly translate into weak demand and pricing in rendered fats." Of course, with the stock now off more than 10% over just the past three weeks and trading at a forward P/E below 15, much of that pressure might already be baked into the valuation.

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The article Why Darling International Inc. Shares Dropped originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Darling International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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