Is DuPont a Good Stock to Buy?

E I DuPont De Nemours And Co (NYSE:DD) has fallen 8% in the last year against a rising market. The $46 billion market cap company produces chemicals, agricultural products, and industrial materials. In 2012 DuPont’s revenue increased only 3% compared to the previous year, with higher sales in the U.S. and Canada- the largest geographic segment, responsible for about 40% of revenue- offsetting smaller declines in EMEA and Asia-Pacific. In terms of the company’s several businesses, growth was led by Agriculture as well as Nutrition and Health. With costs rising at a faster rate, and with an increase in charges related to employee separation and asset write-downs, DuPont experienced a 20% decline in earnings.

In terms of value, DuPont looks a bit expensive at 17 times trailing earnings; even if the company was growing its net income at the same rate as its revenue, that growth rate would probably still be too low for that multiple. So in our view the market is pricing in a considerable improvement in the business, and Wall Street analysts agree with this view: consensus for 2014 implies a forward P/E of only 11. A multiple in that range seems more reasonable for DuPont, but net income will have to hit analyst targets first and we aren’t sure we’d want to rely on the company doing so. DuPont does pay a moderately high dividend yield at 3.5%.

We track 13F filings from hedge funds and other notable investors as part of our work researching investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds generate an excess return of 18 percentage points per year on average), and can also use our database to see which funds owned DuPont at the end of 2012. Billionaire Ken Griffin’s Citadel Investment Group was buying DuPont in the fourth quarter, and closed December with a total of about 440,000 shares in its portfolio (see Griffin’s stock picks). Levin Capital Strategies, managed by John Levin, more than doubled the size of its own position to 1.2 million shares (find Levin’s favorite stocks).

DuPont’s peers include The Dow Chemical Company (NYSE:DOW) and Air Products & Chemicals, Inc. (NYSE:APD). Dow is quite similar to DuPont in quantitative terms: its trailing earnings multiple is high, but optimistic forecasts from the Street place the company at 11 times forward earnings estimates. As with DuPont, however, business has not been particularly strong- revenue actually dipped 1% last quarter compared to the fourth quarter of 2011- and so even though the dividend yield is high it doesn’t look like a good value right now. Air Products & Chemicals at least has both trailing and forward P/Es in the teens, and reported double-digit growth rates of both revenue and earnings in its most recent quarter compared to the same period in the previous fiscal year. It might be worth looking into how sustainable those results are as the larger chemicals players seem to be struggling.