Morningstar | DowDuPont Completes Dow Spin-Off; Our DowDuPont Fair Value Estimate Is Now $45 Per Share
On April 1, DowDuPont spun off of the materials science business, named Dow. The spin-off was the first of two separations that will result in three separate companies, a commodity chemicals business (Dow), a specialty chemicals business (named DuPont) and an agriculture business (named Corteva). On April 2, DowDuPont began trading on an ex-Dow basis. Having updated our DowDuPont model, our fair value estimate falls to $45 per share from $63. Our narrow moat rating is intact.Our $45 per share fair value estimate reflects our DuPont fair value estimate of roughly $31 per DowDuPont share and our Corteva fair value estimate of roughly $14 per share. The current plan is for Corteva to spin off from DowDuPont on June 1. At that point, DowDuPont will be renamed DuPont and the separations will be complete. We will continue to cover DowDuPont through June and both DuPont and Corteva thereafter, but we will not maintain coverage of Dow.
We are also lowering our uncertainty rating for DowDuPont to Medium from High to reflect the removal of the highly volatile commodity chemicals business, which is subject to greater profit swings based on high fixed operating costs, which makes profits sensitive to the spread between Brent oil to U.S. natural gas.
DuPont will benefit from multiple secular trends, including the continued light-weighting and electrification of automotives, a rise in the interconnectivity of devices that require more electronic components, and continued growth in U.S. housing starts over the next decade.
Seeds generate the majority of Corteva's revenue. Corteva holds the number two seed portfolio behind Bayer (Monsanto). Although Corteva currently licenses Bayer's Roundup Ready 2 seed technology platform, this agreement expires in 2023. Starting in 2023, Corteva will switch all new seeds to its proprietary Enlist platform, which should boost margins from 19% in 2018 to the mid-20% range in our midcycle (2023) forecast.
DowDuPont is a holding company comprised of The Dow Chemical Company and E. I. du Pont de Nemours and Company with a focus on forming independent, publicly traded companies in the agriculture and specialty products sectors. The company's worldwide operations are managed through global businesses and include the following reportable segments: Agriculture; Electronics and Imaging; Nutrition and Biosciences; Transportation and Advanced Polymers; and Safety and Construction.
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