SouthernSun SMID Cap on Darling Ingredients Inc. (DAR)

Pitch Summary Darling Ingredients (DAR) was a top contributor in the SMID Cap strategy in the fourth quarter. DAR is the largest publicly traded company turning edible by-products and food waste into sustainable products and a leading producer of renewable energy. Darling has faced significant headwinds over the past couple of years, and the stock traded within a fairly tight range of $30-40 over the past twelve months. This downturn is, in our opinion, at or near a bottom. We see several fundamental and regulatory changes supporting our view that top line and bottom-line results will inflect higher in 2026. Recent announcements from Washington and from the company are supportive of our view. The base Food and Feed businesses are providing support for the struggling Fuel business – a natural hedge we have long discussed. In addition, the company’s vertically integrated supply chain and low-cost position have proven resilient in the face of such headwinds. We expect results for 4q25 to be challenged and believe this reality is accounted for in today’s share price. As the cycle turns, the operational improvements made over the past couple of years together with an upgraded asset base will, in our opinion, provide a boost to operating profitability and discretionary cash flow. While frustrated with the performance over the past couple of years, we were pleased to see stabilization in the business and the stock price in recent quarters and believe some meaningful relief is on the horizon.

BSD Analysis Darling is the undisputed heavyweight of the "Waste-to-Wealth" cycle, turning animal byproducts into the low-carbon fuel that the airline industry is desperate for. Their Diamond Green Diesel joint venture is a literal goldmine in 2026, benefiting from a massive spike in Sustainable Aviation Fuel (SAF) mandates across Europe and the U.S. While commodity price swings create volatility, the firm's vertical integration from slaughterhouse to fuel pump provides a moat that competitors can’t touch. It’s a messy business with a beautiful bottom line, acting as the ultimate ESG-friendly engine for the global energy transition.

Original Source https://www.buysidedigest.com/bsd-letter/?letter=southernsun-smid-cap-2025-q4