Chemical stocks have been soaring, but DuPont has been lagging behind its peers. Its shares look like a smart play on the coming phase of the economic recovery as it begins to play catch-up.
It isn’t that specialty chemical producer DuPont (ticker: DD) has performed badly. Its stock is up 17%, to $83.24, this year, beating the S&P 500’s 11% rise. But commodity chemical producers such as Dow ( DOW ) and LyondellBasell Industries (LYB) are up more than 24%.
Investors appear to have forgotten about DuPont. The Texas deep freeze knocked out a lot of U.S. chemical production, creating shortages as well as higher margins for the likes of Lyondell and Dow, which has returned 18% since Barron’s recommended it on Feb. 26, while the S&P 500 gained 10%.
Yet DuPont also has a lot going for it. This version of DuPont came out of the combination of the old Dow and the old DuPont. DowDuPont then split into Dow, DuPont, and Corteva (CTVA) in mid-2019. After the split, DuPont merged its nutrition business with International Flavors & Fragrances (IFF).
DuPont is now essentially a chemical giant with electronics, automotive, industrial, and construction businesses. These are all good areas to be in right now. Car sales are booming, semiconductor demand is at record highs, and new housing starts in the U.S. are at levels not seen since 2006.
All that is translating into results. DuPont beat first-quarter estimates when it released earnings on May 4 and raised its full-year 2021 guidance. RBC analyst Arun Viswanathan was impressed and raised his price target to $94 from $89 after the report. He rates the stock a Buy.
But it isn’t just the booming economy that has Viswanathan feeling optimistic. DuPont paid down a $3 billion term loan in February, after the IFF deal closed, and plans to cut debt by another $2 billion in May. Its total leverage will be below three times earnings before interest, taxes, depreciation, and amortization. In March, the company announced a new $1.5 billion stock buyback and purchased electronic-materials company Laird Performance Materials for $2.3 billion.
DuPont should have staying power, too. Goldman Sachs analyst Robert Koort upgraded DuPont shares to Buy from Hold this past week, writing that he now favors “longer duration growth.” Koort believes DuPont shares can keep working long after stocks such as Lyondell, which react more quickly to an improving economy, have moved. He is also more bullish than Viswanathan. Based on his $102 target price, shares could rise more than 20% over the next 12 months.
Get in while the going’s still good.
Write to Al Root at [email protected]
