Why One Fund Bought $70 Milion in Darling Stock Despite a 15% Slide This Past Year

Investment firm No Street GP LP established a new position in Darling Ingredients (NYSE:DAR) during the third quarter, acquiring 2.25 million shares valued at approximately $69.5 million, which constitutes 4.6% of its $1.5 billion in reportable U.S. equity assets under management. This strategic investment comes as Darling Ingredients' stock has declined 15.4% over the past year, suggesting No Street is leaning into a repriced asset. The company's Q3 results showed resilience with net sales rising to $1.6 billion and increased net income, supported by strong core ingredients performance and tax-credit monetizations, positioning it for potential recovery despite challenges in its Diamond Green Diesel joint venture.

Analysis

No Street GP LP initiated a significant new position in Darling Ingredients (DAR) during Q3, acquiring 2.25 million shares valued at $69.5 million, representing 4.6% of its reportable AUM. This investment signals a potential contrarian play, given DAR's 15.4% stock decline over the past year and its 30-percentage-point underperformance against the S&P 500. The firm's move into this "cash-flow-centric industrial name" contrasts with its typical high-growth portfolio.

Darling Ingredients reported robust Q3 2023 results, with net sales increasing to $1.6 billion from $1.4 billion year-over-year and net income rising modestly to $19.4 million. The core ingredients segment demonstrated solid performance, contributing to a year-over-year increase in combined adjusted EBITDA to $244.9 million. The company also advanced tax-credit monetizations, securing $125 million with an additional $125-$175 million anticipated by year-end.

Despite these positives, the Diamond Green Diesel joint venture experienced weakness with negative EBITDA per gallon, though management expects policy tailwinds to improve margins. Darling Ingredients' strategic focus on sustainable natural ingredients and renewable fuels positions it for long-term growth. Its diversified revenue streams and improving cash generation are highlighted as key drivers for a potential recovery, suggesting current stock weakness may be short-term noise for patient investors.

Key Decisions for Investors

• Consider the strategic implications of No Street's significant new position in Darling Ingredients (DAR), particularly its contrarian approach to a repriced asset.
• Evaluate DAR's Q3 financial resilience, noting strong core ingredients performance and tax-credit monetizations, while acknowledging weakness in the Diamond Green Diesel JV.
• Monitor the impact of anticipated policy tailwinds on the Diamond Green Diesel segment and DAR's broader exposure to renewable fuels for long-term value.
• Assess DAR's potential as a cash-flow-centric industrial investment, recognizing its diversified portfolio and improving cash generation as drivers for a potential recovery.