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

No Street GP LP disclosed a new Q3 position in Darling Ingredients (DAR), acquiring 2.25 million shares valued at $69.5 million, representing 4.6% of its $1.5 billion U.S. equity holdings. This investment reflects No Street's strategy of targeting underperforming companies, as DAR shares have declined 15.4% year-to-date. Despite weakness in its Diamond Green Diesel joint venture, Darling reported robust Q3 results with increased net sales and net income, strong core ingredients performance, and significant tax-credit monetizations, positioning the cash-flow-centric firm for potential recovery driven by its diversified portfolio and renewable fuels exposure.

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 $1.5 billion U.S. equity holdings. This move aligns with No Street's pattern of investing in companies that have experienced sharp repricing, as DAR shares have declined 15.4% over the past year, significantly underperforming the S&P 500 by 30 percentage points. The investment firm, typically focused on high-growth names like AppLovin and Uber, appears to be diversifying into a cash-flow-centric industrial asset with DAR.

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

Despite these positives, the Diamond Green Diesel (DGD) joint venture experienced weakness, with EBITDA per gallon turning negative. However, management projects policy tailwinds to improve DGD margins, indicating a potential recovery. Darling's diversified ingredient portfolio, improving cash generation, and strategic exposure to renewable fuels position it for long-term recovery, suggesting current stock weakness may be short-term noise rather than fundamental value erosion.

Key Decisions for Investors

• Closely monitor Darling Ingredients' Diamond Green Diesel joint venture performance and management's execution on policy tailwinds to improve margins.
• Evaluate the long-term thesis behind No Street GP LP's significant investment, considering DAR's cash-flow-centric profile and strategic positioning in sustainable ingredients amidst its recent stock underperformance.
• Assess the company's continued ability to generate strong cash flow and monetize tax credits, which are key indicators of operational resilience and potential for recovery.