Hook and thesis
If you believe in the long-term economics of the circular economy - converting waste streams into proteins, fats, gelatins and renewable fuels - Darling Ingredients (ticker: DAR) is one of the purest plays. The market has been punishing the stock for volatility in fuel and feed commodity spreads and for periodic nonoperating losses; that has created an entry window that looks attractive versus the companys core cash generation and replacement-value balance sheet.
My thesis: DAR is a tactical long on an improving macro for renewable fuels and an eventual normalization of by-product pricing. The business produces steady operating cash flow (latest quarterly net cash from operating activities was $224.3m) while investing to expand higher-margin biofuel capacity and the food/ingredient portfolio. The share price currently discounts those durable cash flows and the embedded asset base - I see a clear risk/reward to the upside over a swing-to-position horizon.
What Darling does and why it matters
Darling collects animal by-products and used cooking oil and processes them into value-added products across three segments: feed ingredients (the largest revenue contributor), food ingredients (gelatin, proteins, specialty products) and fuel ingredients (renewable diesel feedstocks and partnerships such as Diamond Green Diesel historically). That vertical integration - owning both collection and processing - creates a lower-cost feedstock funnel and a natural hedge across end markets.
Why investors should care: 1) the company sits at the intersection of sustainability and commodity value capture; 2) the feed and food segments provide revenue stability (recent quarterly revenues around $1.56bn); 3) fuel ingredients carry outsized upside when renewable diesel margins widen or policy support increases; 4) the business is cash-generative, supporting reinvestment without immediate balance-sheet stress.
What the numbers tell us (selected recent data)
- Top-line stability: revenues in the most recent quarter (fiscal Q3 2026, period ended 09/27/2025) were $1,563,966,000. The prior quarter (Q2) was $1,481,518,000, showing the business runs ~1.4-1.7bn in quarterly revenue depending on seasonal and commodity factors.
- Profitability and operating income: gross profit for the latest quarter was $387,009,000 and operating income was $71,726,000, indicating meaningful gross margins but pressure below the operating line from depreciation/amortization and SG&A.
- Net income volatility: the company reported net income of $21,055,000 in the latest quarter (diluted EPS $0.12), after a -$55,196,000 nonoperating loss. This highlights that operating performance is stronger than headline earnings when nonrecurring or financing-related items show up.
- Cash flow strength: net cash flow from operating activities in the latest quarter was $224,339,000. Historically the company has delivered large operating cash inflows (examples: $248,960,000; $274,466,000 in prior quarters), which supports capex and JV investments.
- Balance sheet scale: total assets reported were $10,452,339,000 and equity attributable to the parent was $4,688,844,000 in the most recent filing; liabilities were $5,683,209,000. Thats a sizable asset base supporting the processing footprint.
- Share count for market-cap math: diluted average shares in the latest quarter were ~159.95m. Using a reference last close of about $36.80, that produces an approximate market capitalization around $5.9bn (note: detailed cash and debt items required for EV calculation were not available in the snapshot).
Valuation framing
The dataset does not include a market-cap figure or complete debt/cash lines to compute enterprise value precisely; using the available diluted share count (159.947m) and a recent reference price near $36.80, DARs market cap is roughly $5.9bn. Compare that to shareholders' equity of ~$4.69bn and total assets of ~$10.45bn - the market is not valuing Darling at a hefty premium to book value. More importantly, the company produces quarterly operating cash flow in the low hundreds of millions which implies attractive cash-generation relative to the equity value if renewable-fuel economics or by-product spreads recover.
Qualitatively, peer comparables are not supplied in the dataset for a formal multiple comparison. Based on the numbers above, investors assessing value should focus on: 1) operating cash flow run-rate vs. implied equity value; 2) the trajectory of renewable fuel margins and policy support; 3) normalized nonoperating items (FX, JV accounting, impairments) which can depress near-term EPS but not necessarily recurring cash generation.
Catalysts (2-5)
- Improving renewable-diesel margins - policy support or widening diesel-to-feedstock spreads would lift fuel-ingredients profitability and EBITDA.
- Recovery in animal-protein by-product prices - higher prices for fats, gelatins or blood meal would restore gross margins in feed and food segments.
- Diamond Green Diesel / JV performance or expansions - any positive ramp at JV or announcements of additional capacity would be upside for the fuel segment.
- Cost control and SG&A leverage - continued discipline could drive operating leverage given stable revenue.
- Institutional buying / activist interest - public filings show large institutional accumulation in past months, which can act as a price support (news items note fund activity, dated 11/15/2025).
Actionable trade idea
This is a directional, tactically oriented long with a position-sizing reminder - keep exposure modest relative to portfolio size because commodity cycles can remain unfavorable longer than expected.
Entry: $35.00 - $37.00 (current tape is near $36.80)
Initial stop-loss: $30.00 (about 15-18% below entry depending on exact purchase price)
Near-term target (swing): $45.00 (retests the resistance zone around $41-$43 and captures an upside leg)
Stretch / position target: $55.00 (if renewable-fuel margins reprice and operating cash flow sustainably improves)
Suggested sizing: 2-5% of portfolio for a swing trade; scale into position on weakness. Move stop to breakeven once the position reaches the near-term target or structure a trailing stop.
Why this trade works
Two core reasons: 1) operational cash generation is strong and consistent - latest quarterly operating cash flow was $224.3m - implying a lot of optionality to fund capex or weather cycles; 2) share price reflects cyclical stress rather than permanent impairment of core assets. The balance sheet shows equity of ~ $4.69bn against an implied market cap of ~ $5.9bn, suggesting the market is not paying up for future upside.
Risks and counterarguments (at least 4 risks + counterargument)
- Commodity cyclicality: the business depends on commodity spreads (fats, used cooking oil, animal by-product prices). Prolonged weakness in those spreads can compress margins and cash flow beyond current expectations.
- Nonoperating volatility and FX/exchange items: the company has reported sizable nonoperating losses in recent quarters (for example, a -$55.2m nonoperating loss in the latest quarter and other periods with large negative nonoperating items). These items can swing reported EPS and investor sentiment.
- Capital intensity and investing draw: net cash flow from investing activities has been noticeably negative in several quarters (e.g., -$287.47m in the latest quarter and larger negatives in prior periods). If capex ramps without corresponding margin improvement, returns could disappoint.
- Policy/regulatory risk: renewable fuels are influenced by policy (credits, mandates). A change in incentives or an adverse regulatory decision could materially impact the fuel segment's economics.
- Operational / JV execution risk: Darling has historically partnered or invested in joint ventures to scale renewable diesel. Execution delays, cost overruns or JV governance conflicts would be a meaningful downside.
Counterargument: Its possible the cycle that pressured renewable fuels and by-product pricing lasts longer than anticipated. If margins stay depressed and the company continues high reinvestment, EPS and cash returns could be structurally lower for multiple quarters, compressing multiples and hitting the stock. That scenario argues for a smaller initial position and vigilant stop management.
What would change my mind
I would become more bullish if: 1) quarterly operating cash flow rises sustainably above $300m alongside improving fuel margins; 2) the company reports fewer negative nonoperating surprises and FX volatility abates; 3) there is clear evidence of higher utilization and margin recovery in the fuel segment (JV ramps or margin commentary). Conversely, I would turn negative if operating cash flow meaningfully deteriorates (quarterly OCF < $150m persistently) or if the company announces large impairments / capital overruns on new facilities.
Conclusion and stance
Darling Ingredients is a well-capitalized, cash-generative operator in a thematic area - circular ingredients and renewable fuels - that should benefit from longer-term sustainability tailwinds. Near-term volatility tied to commodity spreads and occasional nonoperating losses creates entry opportunities. For active investors comfortable with cyclical risk, I recommend a tactical long (entry $35-37, stop $30, targets $45/$55) while monitoring fuel margin data, by-product price recovery and quarterly operating cash generation.
Note on data: filings referenced in this write-up include the quarter ended 09/27/2025 (filed 11/05/2025) and earlier quarterly disclosures from 2024 and 2025. If you trade this idea, size appropriately and review the company's full filings for a complete picture.
Disclosure
Not financial advice. This is a trade idea based on public company financials and recent news; always run your own due diligence and consider position sizing and risk tolerance before trading.