Stock Analysis & Ideas

DuPont’s Strategy Should Yield Profits

Basic industries like DuPont de Nemours (DD) sustain America’s prosperity. I and most analysts are bullish on DD.

DuPont engineers and sells products used in mobile devices, television monitors, personal computers, electronics, and healthcare, and other imaging devices. For the transportation, safety, and construction sectors, DuPont engineers and sells high-performance resins, paints, and coatings, adhesives, silicones, lubricants, and parts.

Among its well-known brands are DuPont Kevlar, Nomex, Corian, Tyvek, Molykote, GREAT STUFF, Styrofoam, Sorona, DOW CORNING TORAY, and CORRGUARD. The extensive brand portfolio sells over $21 billion in products.  

Eleven Wall Street analysts have given DD a Buy rating. The trend among analysts over the past 90 days is to upgrade the stock. It is up 10.3% year-to-date. The current price of $77 stands between its 52-week high ($87.27) and low ($65.07).

The average DuPont target price is $94.33. That is an implied upside of 21.3%. (See Analysts’ Top Stocks on TipRanks)

Good Numbers & Strong Sentiment

In its Q3 report, DuPont’s long-term liabilities totaled less than $15 billion. Short-term liabilities were about $4 billion. The company held nearly $4 billion in cash and $3 billion in receivables. DuPont will have no trouble borrowing money with its $40.2-billion market cap if the need arises. DuPont’s free cash flow (56% of EBIT) puts the company in a healthier position to pay off debt.

Hedge funds increased their holdings by 613,600 shares last quarter. Over 70% of DD shares are owned by 810 institutions with investments near to $5 billion.   

Worldwide, conditions are improving. COVID-19 treatments and preventive health methods are improving. Economies are expanding. Unemployment is down and wages are rising. Government stimulus plans will soon take effect. All are good signs for the businesses DuPont targets.

Caveats

DD shares are selling slightly undervalued. Though the company is profitable, expanding, and has momentum, its profitability and dividend yield leave a lot to be desired.

Its 1.3 Beta characterizes the stock’s sensitivity to news about the pandemic, for instance, more than to intrinsic developments. Overall, the company’s strategy is more positive than past performance.

Investors like the company’s plans to focus on sales growth to EVs, 5G infrastructure, energy, and other fast-growing, higher profit markets. Around 15% of DuPont’s current revenue generates from sales to the automobile market.

Sales in 2021 rebounded from 2020, but sales totals will not be near predictions of around 15% year-over-year if auto production remains stymied by chip shortages.

The demand for chemicals and solutions DuPont sells is getting stronger. I expect DuPont’s customers will suffer slowdowns from the semiconductor shortage deep into 2022. This might suppress DD’s revenue and EPS in Q4 and Q1.

In early November, DuPont announced it was buying Rogers Corp (ROG) for over $5 billion in cash. DuPont is selling much of its engineering polymers and performance resins businesses. This purchase extends DuPont’s penchant for growth and higher margins through M&A.

Mid-2021, the company bought Laird Performance Materials for $2.3 billion and divested its nutrition and biosciences businesses.

In its last financial report, DuPont’s $1.15 EPS beat expectations by $0.03, the same number its GAAP EPS missed. Revenue of $4.27 billion was 17.6% higher year-over-year.

The Takeaway

In sum, TipRanks’ Smart Score for DD is a “Perfect 10,” which suggests the stock should outperform the market.

Its technicals are positive. ROE asset growth is 5.6% but down 36.2% for the trailing 12 months. Volatility in the share price and slow organic growth are caveats investors ought to consider.

Overall, management has a business plan and is sticking to it.

Disclosure: At the time of publication, Harold Goldmeier did not have a position in any of the securities mentioned in this article

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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