EUR 850.00 For Business Accounts Only

Morningstar | DowDuPont Completes Corteva Spin-Off and Renames Itself DuPont; Our Fair Value Estimate Is $93. See Updated Analyst Note from 03 Jun 2019

On June 1, DowDuPont completed the Corteva spin-off. At the same time, the company renamed itself DuPont de Nemours and executed a one-for-three reverse stock split. Our fair value estimate for DuPont as a standalone entity is $93 per share, which includes the reverse stock split. We assign a narrow-moat rating to DuPont based on the intangible assets moat source from the firm's pricing power in its patented specialty chemicals.

Additionally, we assign a medium uncertainty rating to DuPont, as typical chemical industry cyclicality is offset by diversified end-markets and pricing power. With 15% of sales coming from the automotive market and no other end market generating more than 10% of total sales, DuPont's customer base and industry exposure is well diversified. Due to the pricing power of the company's specialty chemicals and advanced materials, we forecast companywide revenue to grow around 4% over the next several years, outpacing global GDP.

Although revenue is highly diversified, DuPont is positioned to benefit from a few secular growth trends. First, DuPont's automotive businesses will benefit from increased electrification as it generates over 50% more revenue per vehicle from an EV versus an internal combustion engine vehicle. In the electronics and imaging business, the majority of revenue comes from semiconductor components and interconnected solutions. This exposure should allow DuPont to benefit from continued growth in semiconductors and a rise in device interconnectivity from 5G and Internet of Things technologies.

In the safety and protection business, over 20% of revenue comes from Tyvek housewrap and should benefit from a continued recovery in U.S. housing starts. The nutrition and biosciences business should benefit from an aging population in the U.S. that will require more pharmaceuticals as DuPont is the leading manufacturer of pharmaceutical excipients, which are used to bind tablets.

Finally, we assign a standard stewardship rating to DuPont. CEO Marc Doyle has been with DuPont since 1995, holding various leadership positions prior to the merger with Dow in 2017. Since the merger, Doyle has been the COO of the specialty chemicals business, which is now DuPont. While management has been focused on reducing expenses to achieve cost savings synergy targets, we think the initial guidelines for investment in research and development seem low at 4%-5% of sales, which is below peers such as 3M, Honeywell, and Novozymes. While we think the R&D investment is enough to develop new patented products, we think the levels are too low for DuPont to be able to catch up to competitors where the company does not already hold a market-leading position.