Is There a Better Option Than DuPont?

With shares of E.I. du Pont de Nemours and Company (NYSE:DD) trading at around $55.52, is DD an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

DuPont is trading at 11 times earnings whereas The Dow Chemical Company (NYSE:DOW) is trading at 42 times earnings, and Monsanto (NYSE:MON) is trading at 23 times earnings. However, Monsanto is the most impressive of the three when it comes to profit margin, which is 17.18 percent. DuPont has a profit margin of 13.18 percent, and Dow Chemical has a profit margin of 2.34 percent. In regards to dividend yield, Dow Chemical currently yields 3.70 percent, DuPont yields 3.20 percent, and Monsanto yields 1.50 percent. Up until this point in time, it should be unclear which stock is the most appealing. However, that will change by the time we reach the Conclusion section.

Sticking with the numbers comparison theme for now, there is a 2.90 percent short position on DuPont, a 1.50 percent short position on Dow Chemical, and a 0.90 percent short position on Monsanto. None of these short positions are high, but there is a takeaway from these numbers, which is that shorts don’t want to have anything to do with Monsanto. Why?

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DuPont has outperformed its peers year-to-date (Dow Chemical is actually a closer peer than Monsanto), but Monsanto has outperformed both DuPont and Dow Chemical by wide margins over the past year. This performance has been justifiable. For example, revenue and earnings declined for both DuPont and Dow Chemical last year whereas revenue and earnings both improved for Monsanto.

It should also be noted that Monsanto has shown more resiliency. During the financial crisis of 2008/2009, DuPont dropped approximately 60 percent, Dow Chemical dropped approximately 80 percent, and Monsanto dropped approximately 50 percent. Of course, none of these scenarios are attractive.

Let’s focus on DuPont specifically for now. According to Glassdoor.com, the company culture is good. Employees have rated their employer a 3.4 of 5, and 65 percent of employees would recommend the company to a friend. An impressive 84 percent of employees approve of CEO Ellen J. Kullman. The biggest positives employees stated were a stellar safety record and advanced technology. The biggest negatives reported were the company’s unwillingness to pay to keep top-notch talent and too much of a reliance on reputation. .

DuPont delivered a strong Q1, which was mostly in thanks to the Agriculture business. Sales for corn sees and crop protection products impressed. DuPont also has a strong history for returning capital to shareholders, and the company has announced that it would like to further improve in this area. Another positive is that DuPont is now allocating more cash to higher-return businesses. Current goals for DuPont include:

  • Improve fuel efficiency
  • Create advanced biofuels
  • Improve food quality
  • Grow applications of renewably sourced polymers

Additionally, DuPont’s deal with Yingli Green Energy Holding Co. Ltd. (NYSE:YGE) highlights DuPont’s goal of delivering superior quality solar panels.

Sticking with the China theme, the standard of living has improved, but there has been a large environmental cost. DuPont wants to bridge that gap through scientific innovation. If successful, the rewards could be tremendous.

In regards to analysts, they like but don’t love the stock: 6 Buy, 13 Hold, 2 Underperform.

Let’s take a look at some important numbers prior to forming an opinion on this stock.
T = Technicals Are Strong

DuPont has performed well over the past three years. Then again, most stocks have performed well over the past three years.

1 Month Year-To-Date 1 Year 3 Year
DD 0.78% 25.21% 15.89% 72.50%
DOW -1.75% 7.19% 11.32% 48.09%
MON -1.49% 12.69% 35.38% 127.7%

At $55.52, DuPont is trading above its averages.

50-Day SMA 54.58
200-Day SMA 48.84
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E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio is close to the industry average of 0.90. Monsanto is the most impressive in this area.

Debt-To-Equity Cash Long-Term Debt
DD 1.08 6.58B 13.28B
DOW 0.91 3.35B 20.09B
MON 0.16 4.70B 2.21B

E = Earnings Have Been Inconsistent

Earnings and revenue have both been inconsistent. Despite the inconsistency, earnings have still been steady. Inconsistent revenue is a much bigger concern.

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 31,836 27,328 32,733 38,719 35,310
Diluted EPS ($) 2.20 1.92 3.28 3.68 2.95

Looking at the last quarter on a year-over-year basis, revenue declined and earnings improved. However, both revenue and earnings significantly improved on a sequential basis.

Quarter Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012 Mar. 31, 2013
Revenue ($) in millions 11,256 11,283 7,336 7,572 10,500
Diluted EPS ($) 1.57 1.25 0.01 0.12 3.58

Now let’s take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

Conclusion

Monsanto (not DuPont) has shown consistent revenue and earnings growth on an annual basis, it’s more impressive than DuPont in the margins category, debt management is better, and the stock has vastly outperformed DuPont since its IPO. This isn’t to say DuPont lacks potential, but Monsanto has clearly been a better option. There is little reason to think this will change in the near future.

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DuPont is a WAIT AND SEE.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

All content posted should not be considered professional advice. Please do your own research and consult with a professional financial advisor before making any investment decisions. I don’t have any positions in this stock.

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