US Renewable Mandates And Specialty Ingredients Will Power Market Evolution

Key Takeaways

• Favorable policy shifts, regulatory support, and product innovation are expected to drive margin expansion, revenue growth, and earnings acceleration across multiple segments.
  
• Diversification into specialty ingredients and global markets enhances operational flexibility, broadens the revenue base, and strengthens overall financial resilience.
  
• Regulatory uncertainty, margin pressure, rising feedstock costs, high leverage, and weak Food segment growth threaten profitability and hinder Darling Ingredients' ability to capitalize on growth opportunities.

Catalysts

Develops, produces, and sells natural ingredients from edible and inedible bio-nutrients in North America, Europe, China, South America, and internationally.

• Policy changes favoring U.S.-sourced renewable diesel feedstocks (higher domestic fat prices, reduced foreign competition) and increasing U.S. biofuel mandates are expected to structurally expand demand and improve pricing power in Darling's Feed and Fuel segments, which should drive higher revenue and margin expansion through 2026 and beyond.
  
• Recent implementation of stricter greenhouse gas reduction requirements in California and the anticipated move higher in LCFS credit prices are set to directly support margin recovery for renewable fuels (DGD), which, once regulatory uncertainties (SRE, RIN, RVO) are resolved later in 2025, are likely to accelerate earnings growth and EBITDA for the Fuel segment.
  
• Ongoing expansion into high-growth, high-margin specialty ingredients via the Nextida JV and rising global demand for health & wellness products (e.g., collagen, functional peptides), backed by scientific validation and early repeat orders, is expected to meaningfully broaden Darling's product portfolio, diversify revenues, and drive Food segment EBITDA growth starting in 2026.
  
• Geographic and product diversification, especially through integration in Brazil and expansion in Europe and the U.K., positions Darling to benefit from population growth and rising protein consumption globally, while providing operational flexibility and stability that should support both top-line growth and resilient net margins.
  
• Investments in operational efficiency and advanced processing technologies are enhancing rendering yields and product innovation, which, combined with strict capital discipline and deleveraging, are expected to improve net margins, boost free cash flow, and set the stage for renewed capital allocation (debt paydown, buybacks) when near-term industry headwinds abate.

Darling Ingredients Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Darling Ingredients's revenue will grow by 4.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.8% today to 10.4% in 3 years time.
• Analysts expect earnings to reach $673.1 million (and earnings per share of $4.21) by about September 2028, up from $105.4 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $414.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.9x on those 2028 earnings, down from 47.5x today. This future PE is lower than the current PE for the US Food industry at 19.5x.
• Analysts expect the number of shares outstanding to decline by 0.54% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Darling Ingredients Future Earnings Per Share Growth

Risks

• Ongoing regulatory and policy uncertainty, especially around Renewable Identification Numbers (RINs), small refinery exemptions (SREs), and finalization of Renewable Volume Obligations (RVOs), creates volatility in renewable fuel margins and delays earnings visibility; unpredictable timing could further pressure topline revenue growth and segment earnings.
  
• Prolonged low utilization rates and margin weakness in the renewable diesel/fuel segment-reflected by DGD-1 remaining offline and lower year-to-date DGD EBITDA ($48.7M in 2025 vs $191.7M in 2024)-indicate industry overcapacity and policy-driven demand-deferral risks, which may weigh on future profitability and net margins.
  
• Increased feedstock cost volatility, evidenced by margin compression from fat and used cooking oil (UCO) price lags, coupled with higher procurement costs when raw material prices rise faster than sales prices, risk future gross margin instability and may negatively impact EBITDA.
  
• High leverage and focus on deleveraging constrain near-term growth investments, highlighted by a preliminary leverage ratio still above target (3.34x at end of Q2 2025), potentially limiting Darling Ingredients' ability to capitalize quickly on growth opportunities and pressuring net earnings if market conditions worsen.
  
• Emerging biotechnological competition and slow adoption of new health and wellness products (Nextida), along with tepid or oversupplied collagen/gelatin markets, could slow Food segment growth, potentially translating to lower-than-expected revenue contribution from strategic diversification initiatives.

Valuation

• The analysts have a consensus price target of $46.167 for Darling Ingredients based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $60.0, and the most bearish reporting a price target of just $34.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.5 billion, earnings will come to $673.1 million, and it would be trading on a PE ratio of 12.9x, assuming you use a discount rate of 6.8%.
• Given the current share price of $31.64, the analyst price target of $46.17 is 31.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.