Is DAR a Buy as Earnings Surge but Cost and Capacity Risks Build?

DAR's Valuation Leaves Room for Upside

DAR trades at 10.04X forward 12-month EPS, below the Zacks sub-industry's 15.03X and its own five-year median of 11.85X. The discount leaves room for revaluation if recent earnings improvement proves durable.

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The stock has already gained 117.3% in the past year, so valuation alone is not enough to remove risk. Continued upside would likely require core margins and renewable-fuel economics to remain supportive as investors reassess the sustainability of 2026 earnings.

Darling's Core EBITDA Supports the Growth Case

Core ingredients adjusted EBITDA reached $352.5 million in the second quarter, up from $206.9 million a year earlier. Contract management, commercial optimization, price-risk management and operating efficiency helped lift earnings from the existing asset base.

Management expects core ingredients adjusted EBITDA of $325-$340 million in the third quarter. Excluding the second-quarter Food tariff recovery, that range implies underlying performance generally consistent with the elevated second-quarter level, which supports a more durable earnings case beyond one unusually strong period.

DAR's DGD Strength Raises Earnings Potential

Diamond Green Diesel ("DGD") produced 355.9 million gallons in the second quarter, while Darling's share of DGD adjusted EBITDA rose to $389.2 million from $42.6 million a year earlier. Management expects about 335 million gallons of third-quarter production and views margins through 2027 as attractive under the current renewable-fuel mandate.

Valero Energy Corporation VLO is Darling's partner in DGD, giving it direct exposure to the same renewable-diesel venture. Bunge Global SA BG, meanwhile, is expanding its role in renewable-fuels feedstocks through supply agreements and oilseed-processing investments, making it relevant to the broader feedstock and policy backdrop supporting renewable fuels.

Darling's Costs and Capacity Temper the Setup

Selling, general and administrative expenses increased to $151 million in the second quarter from $138.1 million a year earlier. Acquisition and integration costs also rose to $13.2 million from $3.4 million, creating more pressure if commodity prices or DGD margins weaken.

Feed raw material processed remained at 3.1 million metric tons, unchanged from both the year-earlier quarter and the first quarter. Darling is out of rendering capacity in Brazil, while faster U.S. poultry line speeds could pressure its network, leaving future Feed growth more dependent on pricing, mix and execution.

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DAR's Ratings Favor Growth Over Momentum

For investors weighing whether to buy, hold or wait, DAR's setup remains constructive but not one-sided. The valuation discount, core earnings improvement and DGD contribution support the case, while rising expenses and constrained throughput make continued execution important.

DAR currently carries a Zacks Rank #1 (Strong Buy). It also has a Growth Score of A, VGM Score of A, and Value Score of B, which are favorable when paired with a top Zacks Rank. The Momentum Score of D is the weaker signal, suggesting the stock's current support is stronger on growth, value and blended characteristics than on near-term momentum. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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