Poor demand for chemicals
While growth in DuPont’s GM business was encouraging, its performance chemicals segment, which accounted for 15% of the company’s revenue, posted a 17% decline in sales to $1.59 billion. The main culprit in this drop was weak demand for titanium dioxide (TiO2) paint pigment. TiO2 is a white pigment used in manufacturing paints and coatings, and accounts for nearly 50% of DuPont’s performance chemicals division.
The price of TiO2 has slumped 33% since February 2012, due to waning demand from China and an increased number of downstream players. However, the Chinese government’s recent plans to boost infrastructure spending could cause TiO2 demand to rise again. Moreover, a housing recovery in the U.S. also hints at increased demand.
E I Du Pont De Nemours And Co (NYSE:DD) has been attempting to decrease its exposure to the industrial chemicals business, as evidenced by its $5 billion sale of its auto paint unit last year.
Other businesses
In addition to agricultural products and performance chemicals, DuPont has a diversified portfolio of other businesses.
The company’s electronics and communications segment posted a 9% decline in sales due to decreased sales of solar modules. Its nutritional and health segment reported a 7% rise in sales due to strong demand for probiotics and specialty protein solution. DuPont’s safety and protection segment, which produces protective gear, reported a 4% sales decline.
While these product lines all contribute to DuPont’s top line, none of these segments’ quarterly revenue exceeds $1 billion, making them much lower priority segments than its agricultural and performance chemicals businesses.
The Foolish bottom line
DuPont is an attractively priced stock with strong growth prospects. No longer the stodgy old chemicals business it was known for over the past two centuries, E I Du Pont De Nemours And Co (NYSE:DD) is a cutting edge company with an attractive portfolio of GM products that will benefit from a soaring global population and rising demand for food. As a result, DuPont forecasts operating earnings for 2013 to rise 2% to 7% over 2012.
Although its dependence on titanium dioxide sales will offset some of its gains in the coming year, the price of TiO2 could be boosted by signs of growth from China and a rising housing market in the United States.
Forward P/E | 5-year PEG | Price to Sales (ttm) | Return on Equity (ttm) | Debt to Equity | Profit Margin | Dividend Yield | |
DuPont | 11.90 | 1.96 | 1.34 | 25.91% | 115.34 | 7.96% | 3.50% |
Monsanto | 19.46 | 1.70 | 3.75 | 20.03% | 16.39 | 17.18% | 1.50% |
Syngenta | N/A (trailing P/E 20.39) | N/A | 2.66 | 23.06% | 38.24 | 13.18% | 2.00% |
Advantage | DuPont | Monsanto | DuPont | DuPont | Monsanto | Monsanto | DuPont |
Compared to its peers, DuPont is the cheapest on a fundamental basis, and offers the highest return on equity as well as the best dividend yield. Monsanto is probably the best bet for investors looking for pure exposure to the seeds and herbicides business, but the stock looks slightly overvalued at these levels in comparison to the industry average P/E of 9.9. Syngenta also trades at a high premium to both DuPont and the industry. Therefore, E I Du Pont De Nemours And Co (NYSE:DD) is a solid, undervalued buy at current levels with nice growth prospects on the horizon.
The article Should You Invest in This Evolving Chemicals Giant? originally appeared on Fool.com and is written by Leo Sun.
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