Read us and find out if DuPont Is a Good Investments Idea
DuPont provides specialty products and solutions in key markets: electronics, industrial, transportation, construction, water solutions, and worker safety.
The Business
We expect sales to increase 14% in 2021 (excluding Nutrition & Biosciences results in 2020) after falling 5% in 2020. Q3 2021 sales were up 18% Y/Y, driven by strong pricing and volume improvement. We adjust our 2021 estimate to account for lower global auto builds stemming from the semiconductor chip shortage. However, we expect sales to rise 4% in 2022 on strong demand for semiconductor materials, coupled with momentum in positive trends in residential construction and improving industrial activity. We forecast DD’s EBITDA margin to expand 150 basis points to 25.5% in 2021 as volume recovery and productivity gains are partly offset by reinstated costs that were temporarily restricted as well as raw material inflation. We also expect price action to mitigate pressure. Given our outlook for growth in 2021 and the firm’s target capex spending, we expect DD to generate roughly $1.5 billion in free cash flow in 2021. This, coupled with excess cash from the N&B transaction, supported the approval of a $1.5 billion repurchase plan in Q1 2021. We also expect DD to continue pursuing strategic M&A in markets with high growth potential. As of Q3, DD pays a dividend that yields 1.2% our target
Investment Case
Our opinion is Strong Buy. We think DD shares trade at an attractive valuation following a selloff from June 2021, which we believe is unwarranted given solid earnings results throughout 2021. We also have a favorable outlook on the company’s fundamentals going into 2022, supported by DD’s broad product portfolio in markets with strong near- and longterm traction. Additionally, DD’s strong free cash flow supports a well-balanced capital allocation strategy, including debt reduction, strategic M&A in areas with high growth potential, and share repurchases/dividends. Lastly, we think DD’s liquidity position and balance sheet are also favorable. Risks to our opinion and target price include a longer-than-expected downturn in key industries, such as automotive and aerospace; higher interest rates; and higher-than-expected raw material inflation
Price Target
Our 12-month target price of $97 reflects an EV/EBITDA multiple of 13x our 2022 EBITDA estimate, which is in line with the three-year average multiple of the Specialty Chemical group. We think our valuation fairly accounts for DD’s strong financial position and the expectation of unlocking shareholder value through favorable capital allocation trends.
Our risk assessment is MEDIUM. Reflects the cyclical nature of the chemicals industry, offset by the company's diverse specialty product portfolio in a strong demand environment amid economic recovery from the Covid-19 pandemic. Additionally, we believe DuPont’s transformation into a business with more exposure to markets with secular growth trends (electric vehicles, clean energy, water sustainability) hinges on successful M&A integration.
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