Executive Summary / Key Takeaways

• The Andersons is executing a deliberate portfolio transformation, acquiring full ownership of its ethanol operations and expanding its grain footprint, positioning itself to capture integrated value across the agricultural supply chain rather than remaining a passive participant in volatile commodity markets.

• The 45Z clean fuel production credits represent a material earnings inflection point, with the company expecting $10-15 million in incremental EBITDA in Q4 2025 alone, and management targeting a $4.30 EPS run rate by 2026 driven by increased ethanol ownership and tax credit benefits.

• Agribusiness segment results remain pressured by trade policy uncertainty and low commodity prices, but the Skyland Grain acquisition adds scale and geographic diversification while the segment realignment aims to unlock cross-selling synergies between grain origination and nutrient sales.

• The balance sheet supports this transformation, with $1.9 billion in available liquidity and debt-to-EBITDA at approximately 2x, well below the 2.5x target, providing dry powder for further strategic investments even after the $425 million TAMH acquisition.

• The central investment thesis hinges on two variables: clarity on trade policy to unlock Agribusiness margins, and successful integration of recent acquisitions to realize the full earnings potential of the integrated model.

Setting the Scene: From Grain Handler to Integrated Agribusiness Platform

The Andersons, Inc., founded in 1947 and headquartered in Maumee, Ohio, spent decades building a respectable but cyclical business as a regional grain handler and fertilizer distributor. For most of its history, the company operated as a mid-tier participant in agricultural supply chains, competing against giants like Archer-Daniels-Midland (ADM) and Bunge (BG) in grain merchandising while maintaining a niche presence in ethanol production and plant nutrients. This positioning left it vulnerable to the same commodity price swings and margin compression that plague the sector, with limited differentiation beyond regional scale and customer relationships.

The current investment story represents a fundamental departure from this passive model. Over the past two years, management has executed a series of deliberate moves to transform The Andersons into an integrated agribusiness platform designed to capture value across multiple touchpoints of the agricultural economy. The April 2023 deconsolidation of ELEMENT, the November 2024 acquisition of a 65% stake in Skyland Grain for $85 million, and the July 2025 purchase of the remaining 49.9% of The Andersons Marathon Holdings (TAMH) for $425 million are not isolated transactions. They form a coherent strategy to control more of the value chain, from grain origination through ethanol production to clean fuel credit generation.

This transformation occurs against a backdrop of profound industry change. The Inflation Reduction Act's 45Z clean fuel production credits, effective January 2025 and extended through 2029, create a direct financial incentive for low-carbon ethanol production. Simultaneously, trade policy uncertainty has disrupted traditional grain flows, pressuring margins for pure-play merchandisers while creating opportunities for integrated players who can source corn internally and capture alternative revenue streams. The Andersons' new structure—combining Trade and Nutrient Industrial into a unified Agribusiness segment while fully consolidating Renewables—positions it to exploit these dynamics in ways its larger but more siloed competitors cannot easily replicate.

Technology, Products, and Strategic Differentiation: The Integrated Value Chain

The Andersons' competitive advantage stems not from proprietary technology in the traditional sense, but from the operational and financial integration of previously separate business lines. The full ownership of four ethanol plants with approximately 500 million gallons of annual production capacity transforms the company's economics in two ways. First, it captures 100% of plant EBITDA that previously flowed to Marathon Petroleum (MPC) as a minority partner. Second, and more importantly, it creates a captive demand base for the Agribusiness segment's grain origination network while generating 45Z tax credits that are materially accretive to earnings.

The 45Z credits function as a policy-driven technology arbitrage. The company recognized $20.2 million in year-to-date 2025 credits in Q3, with management expecting an additional $10-15 million in Q4 EBITDA after accounting for qualification expenses. These credits, which can reach $1 per gallon for low-carbon fuel production, are not a temporary subsidy but a structural shift in ethanol economics through 2029. The Andersons is pursuing a Class VI well permit for carbon sequestration at its Clymers, Indiana facility, which would further reduce carbon intensity scores and generate additional credits. This represents a tangible technological differentiation: while competitors like Green Plains (GPRE) operate ethanol plants as standalone assets, The Andersons can integrate carbon capture with grain sourcing and co-product marketing to maximize credit generation.

The Skyland Grain acquisition expands this integrated model across 275 million bushels of grain storage capacity (up from 170 million bushels pre-acquisition) spanning Kansas, Colorado, Oklahoma, and Texas. Skyland's operations include cotton gins, agronomy services, and fuel sales, providing multiple customer touchpoints and revenue streams beyond basic elevation fees. The original EBITDA estimate of $30-40 million annually has been revised down to approximately $15 million for 2025 due to headwinds in the Western Corn Belt, but management expects a return to the original run rate if conditions normalize. This geographic diversification reduces concentration risk in the Eastern Corn Belt while creating opportunities to supply the Renewables segment with internally sourced corn.

The segment realignment effective January 2025—combining Trade and Nutrient Industrial into Agribusiness—reflects management's recognition that the traditional silos no longer serve a market where climate-smart agriculture programs link directly to ethanol production. By presenting a unified face to producers, the company can offer bundled grain marketing, nutrient sales, and agronomic services that competitors operating separate divisions struggle to match. This integration creates network effects: farmers selling grain to The Andersons become more likely to purchase fertilizer and agronomy services, while the grain origination network provides a cost-effective feedstock supply for ethanol plants.

Financial Performance & Segment Dynamics: Evidence of Transformation

The Q3 2025 results provide clear evidence of this transformation in action, though the numbers reveal a tale of two segments. Agribusiness reported segment income of just $1.5 million, down from $22.8 million in Q3 2024, a decline management attributes directly to trade policy uncertainty, low prices, and volatility reducing gross profit in grain assets and merchandising. The wheat harvest yielded higher-than-expected volumes, allowing elevators to accumulate bushels at favorable basis values, but fall harvest progress has been uneven with low market prices causing feed and end-use customers to limit purchases to immediate needs.

Despite these headwinds, the Skyland acquisition contributed $101.9 million in sales and $19.3 million in gross profit during Q3, partially offsetting weakness in legacy businesses. The nutrient business within Agribusiness showed resilience, with increased margins and higher year-over-year volumes during a seasonally slow quarter. Total grain storage capacity increased 62% year-over-year to 275 million bushels, providing the physical infrastructure to support an integrated model. For the nine months ended September 30, 2025, Agribusiness operating results decreased $39.3 million, but gross profit increased $30.7 million, with $54.4 million attributed to Skyland offsetting declines in legacy operations.

The Renewables segment tells a different story. Q3 segment income of $43.5 million was down slightly from $50.0 million in Q3 2024, but adjusted pretax income attributable to the company jumped to $46 million from $26 million, while adjusted EBITDA increased to $67 million from $63 million. The difference lies in the acquisition impact: full ownership of the ethanol plants added approximately $12 million in pretax earnings ($0.28 per share) in Q3, including 45Z tax credits for August and September. The plants operated efficiently with slightly higher year-over-year yields and gallons produced, though lower board crush , higher corn basis, and increased natural gas costs pressured margins. Plant co-product contribution improved due to higher distillers corn oil prices, partially offset by declines in dried distillers grain values.

The consolidated financial picture reflects the transformation's cost. Working capital decreased $522.5 million year-over-year to $630.7 million, primarily due to the $425 million cash outlay for TAMH. Operating activities generated $183.2 million in the first nine months of 2025, up from $62.7 million in the prior year, driven by a $175.5 million favorable shift in operating assets and liabilities. Investing activities used $127.3 million, with capital expenditures increasing $69 million to support growth initiatives. Financing activities used $538 million, reflecting the TAMH acquisition partially offset by reduced distributions to noncontrolling interests.

The balance sheet remains robust. The company ended Q3 with $82 million in cash and $1.9 billion available under its $2.05 billion credit facility. Debt-to-EBITDA stands at approximately 2x, well below the 2.5x target, providing significant capacity for further growth investments.

As CFO Brian Valentine noted, readily marketable grain inventories continue to exceed short-term debt, providing natural liquidity support.

Outlook, Management Guidance, and Execution Risk

Management has provided clear guidance that frames the investment thesis around a 2026 inflection point. The company converted its previous run-rate EBITDA target to an EPS target of $4.30, which management anticipates reaching through improved Agribusiness results, increased ethanol plant ownership, and the impact of tax credits. This represents a significant step-up from current earnings levels and embeds several key assumptions.

For Q4 2025, management expects Agribusiness results to trend closer to Q4 2024 levels, with elevation margins and merchandising opportunities increasing as harvest progresses. However, farmer fertilizer sales may see reduced demand due to low grain prices despite higher margins. The Renewables segment is expected to generate an additional $10-15 million in EBITDA from 45Z tax credits on a net basis, with the rate of credit generation increasing from 2026 through 2029. Ethanol demand remains strong, with 2025 exports expected to reach record volumes and lower Eastern corn basis post-harvest supporting margins.

The 2026 EPS target assumes several conditions that remain uncertain. First, it requires clarity on trade policy and tariffs, which management believes will reduce market uncertainties and provide merchandising opportunities. Without this clarity, markets are expected to remain challenged through the first half of 2026. Second, it assumes the Skyland acquisition returns to its original $30-40 million EBITDA run rate, which depends on normalization of sorghum and wheat export demand in the Western Corn Belt. Third, it assumes successful completion of long-term capital projects at the Port of Houston and Carlsbad, New Mexico facilities by mid-2026, which will support soybean meal exports and mineral processing.

Execution risks are tangible. The TAMH acquisition, while immediately accretive, required $425 million in cash and increased net debt. Integration risk is limited given that The Andersons already managed these sites, but the company must deliver on efficiency improvements and carbon intensity reductions to maximize 45Z benefits. The Skyland integration is more complex, requiring consolidation of former Trade and Nutrient business segments while optimizing the commercial interface between Andersons merchants and Skyland originators. Management noted during Q3 that they made decisions to exit several underperforming businesses that no longer align with strategy, resulting in additional write-downs.

The 45Z credits themselves carry policy risk. While extended through 2029 under the One Big Beautiful Bill Act, changes in carbon intensity scoring methodologies or political shifts could alter the economics. Management is pursuing a Class VI well permit for carbon sequestration at Clymers, which would further reduce carbon intensity scores, but EPA approval timelines remain uncertain.

Risks and Asymmetries: What Could Break the Thesis

The central investment thesis faces three primary risks that could prevent the company from achieving its $4.30 EPS target. First, trade policy uncertainty could persist longer than anticipated, keeping Agribusiness margins depressed through 2026 and beyond. CEO William Krueger explicitly stated that without clarity on tariffs and trade flows, markets are expected to remain challenged through the first half of 2026. The Western Corn Belt has experienced substantially less export demand for sorghum and wheat, with competing domestic feed demand also down due to lower cattle on feed numbers. If these conditions continue, Skyland may not return to its original EBITDA run rate, and legacy grain assets will continue generating suboptimal returns.

Second, commodity price volatility could undermine both segments simultaneously. Low grain prices reduce farmer willingness to purchase nutrients and limit elevation margins, while higher corn basis increases ethanol production costs and squeezes board crush margins. The company's hedging strategies mitigate but do not eliminate these exposures. A prolonged period of low grain prices combined with high natural gas costs—the dynamic that pressured Q3 2025 ethanol margins—could limit Renewables segment growth despite 45Z benefits.

Third, integration execution could fall short. The Agribusiness segment realignment aims to create cross-selling synergies and operational efficiencies, but the Q3 results show the legacy businesses still struggling with limited trade flows and weak customer demand. If the integration of Skyland's operations, which include three cotton gins and fuel sales divisions, proves more complex than anticipated, expected synergies may fail to materialize. Similarly, while the TAMH acquisition has limited integration risk, the company must still deliver on its commitment to improve plant production efficiency and lower carbon intensity to maximize credit generation.

Asymmetries exist to the upside. Approval of the Class VI well permit at Clymers would enable on-site carbon sequestration, further reducing ethanol's carbon intensity score and generating additional 45Z credits beyond current expectations. A resolution of trade policy disputes could unlock export demand for sorghum and wheat, particularly benefiting the Skyland assets in the Western Corn Belt. The company's strong balance sheet provides optionality to acquire additional ethanol facilities that meet its strict criteria of large scale, good technology, and competitive geographic locations, potentially accelerating earnings growth.

Competitive Context and Positioning

The Andersons operates in a fragmented landscape dominated by global giants. Archer-Daniels-Midland (ADM) processes over 10% of global agricultural commodities and generates $85 billion in annual revenue, while Bunge (BG) maintains strong positions in oilseeds and grain trading with $22 billion in quarterly revenue. Nutrien (NTR) dominates plant nutrients with 20%+ market share in key nutrients and generates 13.5% operating margins. Green Plains (GPRE) competes directly in ethanol but struggles with negative operating margins and declining revenue.

Against these peers, The Andersons' integrated model represents a structural differentiator. ADM and BG operate grain merchandising and ethanol production as separate divisions, limiting synergies. The Andersons' full ownership of ethanol plants creates a captive demand base for its grain elevators, reducing basis risk and providing cost advantages. While ADM's global scale provides superior hedging capabilities and Bunge's international diversification reduces regional volatility, The Andersons' focused integration allows it to capture value that flows between segments in ways larger, more siloed competitors cannot easily replicate.

In Renewables, The Andersons now controls 100% of approximately 500 million gallons of annual ethanol production, positioning it as a top-five producer. GPRE, by contrast, operates similar capacity but lacks the grain origination network and generates negative margins. The Andersons' ability to source corn internally and market co-products through its existing merchandising infrastructure provides a cost structure advantage that pure-play ethanol producers cannot match. The 45Z tax credits amplify this advantage, as integrated players can more easily qualify for low-carbon fuel incentives.

In Agribusiness, The Andersons' 275 million bushels of storage capacity remains modest compared to ADM's global network but represents a 62% increase from pre-Skyland levels. The company's focus on regional origination and agronomic services differentiates it from Nutrien's production-heavy model, though Nutrien's 31% gross margins demonstrate the profitability potential of vertical integration. The Andersons' 6% gross margins reflect its trading-focused model, but the integration of Skyland's cotton gins and fuel sales provides revenue diversification that pure grain handlers lack.

Valuation Context

Trading at approximately $50 per share, The Andersons carries a market capitalization of $1.7 billion and an enterprise value of $2.4 billion. The stock trades at 23.5 times trailing earnings and 9.9 times EBITDA, a discount to ADM (24.0x P/E, 14.4x EBITDA) and BG (10.5x P/E, 16.0x EBITDA), but a premium to the struggling GPRE. The price-to-book ratio of 1.4x and price-to-sales ratio of 0.15x reflect the asset-intensive nature of the business.

The valuation must be assessed in the context of transformation. Current earnings include $20.2 million in 45Z credits recognized year-to-date, with management expecting $10-15 million in Q4 and an increasing rate through 2029. On a pro forma basis, full ownership of the ethanol plants would have added $0.70-0.75 per share annually over the past four years, and over $1.00 in peak years like 2023. The $4.30 EPS target for 2026 implies a forward P/E of approximately 11.6x, a significant discount to peers if achieved.

Balance sheet strength supports the valuation. Debt-to-equity of 0.63x and debt-to-EBITDA of approximately 2.0x provide substantial capacity for growth investments. The company generated $331 million in operating cash flow and $182 million in free cash flow over the trailing twelve months, with Q3 free cash flow of $167 million demonstrating strong conversion. Available liquidity of $1.9 billion exceeds the $425 million spent on TAMH, leaving dry powder for additional acquisitions or capital projects.

The valuation gap relative to peers likely reflects skepticism about Agribusiness recovery and execution risk on the integration story. ADM's 1.95% operating margin and Bunge's 2.19% margin demonstrate the sector's profitability potential, but The Andersons' 0.21% operating margin shows the current drag from transformation costs and cyclical headwinds. If management delivers on the $4.30 EPS target, the stock would trade at a significant discount to integrated agribusiness peers on a forward basis.

Conclusion

The Andersons is executing a deliberate transformation from a cyclical grain handler into an integrated agribusiness platform designed to capture value across the entire agricultural supply chain. The strategy centers on two interlocking moves: acquiring full control of ethanol assets to capture 45Z tax credits, and expanding grain origination capacity to feed both external markets and internal production. This creates a business model where grain merchandising, nutrient distribution, and ethanol production reinforce each other, generating synergies that pure-play competitors cannot replicate.

The investment thesis hinges on execution and policy clarity. The $4.30 EPS target for 2026 is achievable if Agribusiness margins recover with trade policy resolution, Skyland returns to its $30-40 million EBITDA run rate, and 45Z credits deliver the expected $10-15 million quarterly EBITDA contribution. The balance sheet provides ample capacity to weather near-term headwinds and fund additional acquisitions that fit the integrated model.

The primary risk is that trade policy uncertainty persists into 2026, keeping Agribusiness margins depressed and preventing Skyland from reaching its potential. Commodity price volatility and integration execution add further execution risk. However, the 45Z credits provide a durable earnings tailwind through 2029, and the carbon sequestration project offers additional upside if approved.

For investors, the key variables to monitor are trade policy developments, Skyland's integration progress, and quarterly 45Z credit generation. If management delivers on its guidance, the stock's current valuation appears conservative relative to the transformed earnings power of the integrated platform. The transformation is incomplete, but the pieces are in place for a step-change in profitability as cyclical headwinds abate and policy tailwinds accelerate.