Is It Time to Buy Darling International?

There are two ways to grow a company: from the inside and from the outside. Darling International (NYSE: DAR  ) understands both ways, and continues to grow both organically and through acquisitions. The finalized acquisition of VION Ingredients is the latest example of how Darling International has become the major sustainable product producer, and another reminder as to why the company is a buy moving forward.

Growth from within
Darling International is all in. The acquisition of VION Ingredients matches perfectly well from a strategic standpoint with their acquisition-centric business model, which really took hold in the 1980s and has carried on since. While acquisitions are really the definition of growth from outside of the company, when brands have been a part of a company for more than a decade, there original identity should be forgotten.  At that point, growth in the brand equates to growth in the larger company.

Darling International, accordingly, is not simply a conglomeration of different nutrition, fertilizer, and biofuel companies, but instead a cohesive organization with a wide platform of products that all fall under one grand vision and mission statement of creating sustainable food, feed, and fuel ingredients.

The definition of sustainable products has undoubtedly broadened from the company's early days working exclusively with waste from the Chicago meatpacking industry, and the subsequent expansion into new industries has not been without its fallbacks. The biofuel industry is one such industry that as a whole has seen ups and downs in response to government mandates and technological issues, but Darling International has persevered through the addition of biofuels to their portfolio and is in the end a better company having done so.

The Diamond Green Diesel partnership between Darling International and Valero Energy (NYSE: VLO  ) is one of many examples where the company has taken on a new endeavor: in this case the production of a fully interchangeable diesel fuel derived from animal fat and used cooking oil that has tremendous potential but will inevitably have some complications. Nonetheless, while the facility ramp-up is still in process and in spite of unexpected facility setbacks and closures, the project has already yielded net income. So seems to be the success story of Darling International.

Growth from the outside
The acquisition of VION Ingredients, for the next 5-10 years, will be looked at as growth from outside of the company. Eventually VION's six major brands, Rendac, Sonac, Ecoson, Rousselt, CTH, and Best Hides, will become fully integrated with the Darling International name. While the brand identity may take some time, financially Darling International should see the benefits of the acquisition much sooner. VION Ingredients brings an immediate source of revenue that will make a quick impact on Darling International's earnings.

Between the Diamond Green Diesel partnership and the VION Ingredients acquisition, Darling International's financials should see a quick improvement. Currently, expectations for growth are implicit in its P/E of 26.96. The more impressive, albeit maybe a bit optimistic, metric is its forward P/E of 13.78. As the only publicly traded rendering company, the metrics are a bit arbitrary, but a forward P/E in the low teens is right in line with other biofuel companies with already established processing plants like Green Plains Renewable Energy (NASDAQ: GPRE  ) . Comparisons with Renewable Energy Group's (NASDAQ: REGI  ) growing P/E, which currently sits at only 2.6, might raise questions, but the only reason the comparison would be considered in the first place is on account of the related diesel ventures, which are mostly new to both companies. Beyond diesel, any reasonable resemblance between the two companies is nonexistent.

The takeaway
Darling International is growing and making bold moves that will pay off in the long run. Though some investors may move with trepidation regarding any companies that flaunt the biofuel label, Darling International's move into green diesel is backed with a solid partnership and a century-old rendering business that is still on the rise.

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