Expect Material Science Business To Drive DowDuPont’s Near Term Growth

DowDuPont (NYSE:DWDP) has seen steady growth in most of its segments in the recent past, primarily led by capacity expansion in Sadara (the company’s joint venture with Saudi Aramco in Saudi Arabia), which has aided the Materials Science business. Agriculture also saw strong growth in Q2 led by both price and volume gains. We expect this trend to continue in the near term, and drive the company’s overall earnings growth. Note that the company is in the process of separation and spinning into three different units, Dow, DuPont, and Corteva. The company’s management expects the spin-offs to be completed in the first half of 2019. We have created an interactive dashboard ~ What Is The Outlook For DowDuPont ~ on the company’s expected performance in 2018 and 2019. You can adjust the revenue and margin drivers to see the impact on the company’s overall revenues, earnings, and price estimate.

Expect Packaging & Specialty Plastics And Industrial Intermediates & Infrastructure To See Strong Growth In The Near Term

We forecast Packaging & Specialty Plastics revenue to grow in high single digit in 2018 and in mid-single digits thereafter. The segment is benefiting from its increased capacity in Sadara, and higher demand for elastomers. In fact, H1 2018 revenues were up an impressive 20%, led by 9% volume gains. We expect this trend to continue in the near term and aid segment revenue growth.

Looking at the Industrial Intermediates & Infrastructure segment, we forecast the growth to be in low double digits in 2018. This can primarily be attributed to the added capacity, which will aid the demand, especially in the Asia-Pacific. Note that the segment revenues grew 30% and EBITDA grew 44% in H1 2018, led by double digit gains in both pricing and volume. The future segment growth will be led by an overall expansion in some of the markets, such as polyurethane, which is expected to grow at a CAGR of 8% from $54 billion in 2018 to $80 billion by 2023. DowDuPont is one of the largest players in the polyurethane market, and an expansion in the overall market will bode well for the company.

Expect Agriculture To See Strong Growth 

We forecast the Agriculture revenues to grow at a CAGR of 5% over the next few years. However, we forecast a strong growth in the near term led by both pricing and volume gains. Q2 was a very strong quarter for the Agriculture segment with 20% growth in volume and a 5% growth in pricing. However, the growth should moderate in the coming quarters, due to expected headwinds from Brazil. It should be noted that the company is positioned to benefit from corn plantations over soybean in Brazil. However, Brazil is seeing higher demand for soybean plantation, and this will likely result in lower corn planted area. This can be attributed to improving soybean prices in anticipation of higher demand from China. Moreover, the trends in the Brazilian Real may impact the segment performance.

Overall, we expect the Materials Science business to drive the company’s near term growth, led by Industrial Intermediates & Infrastructure. We currently forecast adjusted earnings of $4.40 per share in 2018, and a price to earnings multiple of 16x by the end of 2018, to arrive at our price estimate of $72 for DowDuPont, which is slightly above the current market price.

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