Coverage Launch: $58.10 Trefis Price Estimate for DuPont
DuPont (NYSE: DD) supplies high-performance materials and chemicals, high-performance coatings and agricultural products to industries and consumers worldwide. DuPont’s products have a vast array of applications and are used by a wide range of industries which include farming (for agricultural products such as seeds and pesticides), construction, transportation, packaging, paper & pulp and consumer electronics. DuPont competes with companies such as Monsanto (NYSE: MON) in the agricultural products segment as well chemical companies like Dow Chemicals (NYSE: DOW), 3M (NYSE: MMM) and BASF.
Coverage Launch for DuPont – $58.10 price estimate
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We recently launched coverage on DuPont with a $58.10 price estimate for the company’s stock, which is around a 6% premium over its current market price.
DuPont is well positioned to gain in the agricultural and specialty chemicals segment. The company’s flagship seed brand, Pioneer, contributes over 17% of total company sales (FY 2010) and currently holds the largest market share in the U.S. corn and soybean seed market. With increased consolidation in the seed industry, Pioneer should capture a higher market share in the U.S. seed industry.
In 2010, the performance and safety materials division accounted for 49% of DuPont’s global revenues and 46% of the company’s gross profits. This segment accounts for 40% of our price estimate. We expect revenues and gross margins to improve going forward as the global economy and consumer confidence grows. Additionally the company is investing heavily in emerging markets such as China, which will add another engine of growth.
DuPont at a Glance
We have broken down our analysis of DuPont into 7 divisions:
- Performance and safety materials
- Agriculture and nutrition
- Electronics and communication
- Automotive and industrial coatings
- Royalties
- Applied biosciences
- Pharmaceuticals
Performance and Safety Materials
The performance and safety materials division has rebounded strongly in 2010 with revenue growth of about 27% vs. last year. A strong recovery in global demand helped boost sales in this division. DuPont has the potential to further leverage its existing brand portfolio, which includes names such as Teflon (coatings), Kevlar (life protection/bulletproofing) and Zytel (nylon brand). Increased investments by DuPont in Asia-Pacific should increase its market presence in these high-growth markets allowing it to capture market share. We expect gross margins to rise, primarily because of an increase in product prices in order to offset raw material costs.
Emerging Economies Drive Global Chemical Demand
Developing markets, especially China, present immense growth opportunities for specialty & electronic chemicals and coatings, mainly due to the high level of industrial growth in these nations.
Sales revenues of the Chinese specialty chemical market stood at $124 billion in 2008, and this figure will continue to grow. Additionally, China has in the past earmarked certain amounts of its multi-billion dollar stimulus packages for developing infrastructure, and these policies will help boost specialty chemical demand for construction chemicals. With DuPont increasingly investing in R&D and customer support centers (such as the DuPont Automotive Center in Shanghai), we expect both demand and supply hubs for DuPont to shift increasingly to emerging economies.