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DuPont de Nemours Inc.
DD-N
BUY ON WEAKNESS
Aug 02, 2023
$76.380
Stock price when the opinion was issued
chemicals
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BUY
Yesterday, DD reported a good quarter, but the stock fell yesterday and today. And this after raising its forecast. Industrials as a whole are down. Wall Street doesn't realize there's a new Dupont. It's a long-term valuation creation play. It produces specialty chemicals. The CEO has a great track record unlocking value in companies. He's dumping non-core businesses and adding productive ones, such as as joint venture with a semiconductor company. He sold a nutrition/life sciences business to pay down debt.The CEO has also made deals to add exposure to EVs. DD sales are up YOY, and boasted an earnings beat. Q2-2021 sales are up 26% YOY. The CEO also raised the company forecast. DD bought back shares, too.
chemicals
BUY
They just finished a $3.25 billion share buyback and will start a $2 billion one. They've retired 7.6% of their shares so far this year. All told they will reduce shares by 13.5%, the 3rd-biggest buyback on the S&P 500. If you feel interest rates will continue to rise, Dupont is too risk; Dupont has some cyclicality because it's exposed to autos. Overall, he likes Dupont.
chemicals
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DD operates in a cyclical industry and is now trading at 20x times' Forward P/E. In the last few years, DD did actively sell some of its non-core assets, and redeploy the proceeds into significant share repurchases. The balance sheet is okay, with net debt of $3.7B (the debt has gone down substantially due to the proceeds from asset sales mentioned) and net debt/EBITDA is around 1.1x, okay for a cyclical name. Based on consensus estimates, sales are expected to decline by 5% this year and then normalize to around 5% growth going forward. Given the aggressive buyback (the company even cuts the dividends to do more buybacks), DD is quite attractive, but, given the cyclicality of the business, we would size the position conversatively.
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