DARLING INGREDIENTS INC. (DAR) stock intrinsic value fair value estimate & owner earnings analysis

Darling Ingredients collects and processes animal by-products, used cooking oil and food waste into animal feed, pet food, and gelatin/collagen ingredients (its Feed and Food segments, together roughly 90% of consolidated sales), and turns fats and used cooking oil into renewable diesel and sustainable aviation fuel (SAF) through Diamond Green Diesel (DGD), a 50/50 joint venture with Valero. DGD is not consolidated on Darling's books; Darling instead reports its share of DGD's profit and, separately, the cash DGD actually distributes to it. Over the last decade the business has grown a great deal, first through the 2022 acquisition of Valley Proteins, which materially expanded the rendering and collection network, and through the build-out of DGD, most recently a large Port Arthur, Texas facility progressively converted toward SAF. The cash the business generates after real ongoing capital spending, employee stock compensation and swings in receivables/inventory/payables (what we call owner earnings) has grown substantially but has also been volatile - from essentially breakeven in 2019, when a federal biodiesel tax credit had lapsed and was only reinstated retroactively, to roughly $4 per share in both 2022 and 2025. That volatility is a real feature of the business, not an accounting quirk. A large and growing share of Darling's cash flow now comes from DGD, whose profitability depends heavily on federal clean-fuel tax credits and on Renewable Identification Number (RIN) prices, both of which have moved substantially and unpredictably. The credit supporting renewable diesel and SAF (the Clean Fuel Production Credit, or "45Z") took effect in 2025 and was extended through 2029 by legislation enacted in July 2025 - but starting in 2026 the maximum SAF credit was cut roughly 43%, from $1.75 to $1.00 per gallon, and the credit is not currently authorized past 2029. We have not assumed today's credit regime simply continues forever: our forecast assumes a step-down around 2029-2030 if it is not renewed on similar terms, partly offset by a new rule, effective 2026, requiring feedstocks to originate in the U.S., Mexico or Canada, which should favor Darling's North American rendering and collection network over import-reliant competitors. Congress has, in practice, renewed some version of biodiesel/renewable-fuel tax support repeatedly since the mid-2000s, so our base case assumes partial rather than zero continuation after 2029. We anchored normalized owner earnings to the median of the last four fiscal years (2022-2025), a period spanning both a strong stretch for renewable-fuel economics (2022-2023) and a weak one (2024-2025), rather than to any single year, giving roughly $3.19 per share. We valued the next ten years of cash flow plus a view of what the business can sustain afterward, discounted at a flat 6% - the same rate we use for every company, with risk reflected in the spread between the cases below rather than in the rate itself. Our base case assumes the Feed and Food segments keep growing modestly, the 2026 SAF credit cut is a manageable headwind, and clean-fuel credit support continues in reduced form after 2029; this points to a value of roughly $50 per share. Our bear case (roughly a one-in-ten outcome) assumes the credit is not meaningfully renewed after 2029, RIN prices stay depressed as the renewable-diesel industry works through the overcapacity built in 2022-2024, and Darling's roughly $3.9 billion of debt becomes more burdensome in a lower-margin environment; even so, the durable rendering, protein and gelatin businesses support a value of roughly $19.50. Our bull case (roughly a one-in-ten outcome the other way) assumes Congress extends credit support on favorable terms beyond 2029, Darling's North American feedstock position becomes a durable advantage, and SAF demand and DGD utilization keep climbing; this points to roughly $106. A meaningful share of value in every case - roughly half in the bear case and closer to two-thirds in the bull case - comes from what we expect the business to earn after year ten rather than from the next decade alone. That reflects durable, self-renewing rendering and protein businesses, but also the fact that a real portion of today's cash flow depends on a tax credit legislated only through 2029; this tail assumption, not the near-term forecast, is the biggest driver of the spread between our bear and bull cases. Given that width, the margin-of-safety price sits at a meaningful discount to our base-case estimate, around $28.75 per share, and it assumes the U.S. Treasury finalizes its regulations implementing the 2025-2029 clean-fuel credit (not yet issued as of this filing) and clearer evidence that renewable-diesel margins have stabilized after the recent industry-wide capacity build-out. One accounting note: because DGD is not consolidated, Darling's cash flow statement shows the cash DGD actually distributes, which can differ substantially from DGD's reported profit in a given year. In 2025, for example, DGD reported a loss on paper but distributed an unusually large amount of cash to Darling, likely reflecting a catch-up distribution as heavy Port Arthur construction spending wound down. We built our earnings estimate from cash actually received rather than DGD's paper profit, but did not extrapolate that one large distribution forward mechanically.