What's Driving Our $34 Price Estimate For DowDuPont?

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DowDuPont  ( DWDP ) is in the process of separating its businesses. Its Material Science business was separated in April of this year, and its Agriculture business is being spun off currently, and it is expected to distribute the shares in the new company, Corteva, on June 1, 2019. This note details Trefis' forecasts for DowDuPont for 2019. You can view our interactive dashboard analysis on ~ What's Driving Our $34 Price Estimate For DowDuPont? ~ for more details on the expected performance of the company. In addition, you can see more of our data for chemical companies here .

What Are The Key Sources of DowDuPont's Revenue, And How Have They Trended In The Recent Quarters?

  • DowDuPont generates its revenues from Agriculture (being de-merged as Cortex), Packaging & Specialty Plastics, Industrial Intermediates & Infrastructure, Performance Materials & Coatings (these three segment are part of the Material Science business, and were separated in April 2019), Electronics & Imaging, Nutrition & Biosciences, Transportation & Advance Polymers, Safety & Construction, and Corporate (all of which will be part of restructured DuPont).
  • Agriculture revenues are generated from a wide variety of agricultural chemicals such as herbicides, insecticides, and fungicides for farmers. Also included in this division's sales are genetically modified ( GM ) seeds, traits for corn, soybean, and cotton crop.
  • Packaging & Specialty Plastics includes revenues from elastomers, polyethylene, and other products used in the electrical, telecommunication, and packaging industry.
  • Industrial Intermediates and Infrastructure refers to revenues generated from functional materials that consists of a portfolio of products which find application in pharmaceuticals, personal care, and industrial specialty industries.
  • Performance Materials and Coating segment includes products such as amines, chlorinated organics, automotive systems, and epoxy, among others. The segment also includes products, such as adhesives and sealants, construction materials, cellulosic-based construction additives, raw materials for architectural paints and industrial coatings, and technologies used for water purification.
  • Transportation and Advanced Polymers segment provides material solutions with high-performance engineering resins, adhesives, lubricants and parts for the transportation, electronics, and medical industries.
  • Electronic & Imaging business offers high-performance materials designed for specific use in the electronic industry. Electronic materials are primarily used in the production of electronic displays, fabrication of printed circuit boards, and integrated metallization processes.
  • Nutrition & Health products includes soy-based food ingredients and food processing chemicals. The company sells probiotics and cultures, specialty proteins, systems and texturants, and excipients. Industrial BioSciences primarily focuses on new product development to assess and build commercial viability of other businesses through biotechnology and engineering solutions including enzymes, biomaterials, biocides, and antimicrobial solutions, and process technology.
  • Safety and Construction primarily includes supply of safety and protection materials globally.
  • Corporate refers to certain company-related activities, such as insurance, and environmental operations, among others. It also includes non-business aligned joint ventures, gains and losses on the sales of financial assets, and discontinued businesses.
  • Total Revenues for DowDuPont have largely trended lower over recent quarters. Revenues declined from $21.5 billion in Q1 2018 to $19.6 billion in Q1 2019.

How Much Can DowDuPont's Top Line Grow In 2019?

  • DowDuPont's revenues will likely be around $48.2 billion in 2019, as compared to $85.9 billion in 2018.
  • This can be attributed to separation of the company's Material Science business in April 2019. Note that the segment revenues of Q1 are included in the total annual figure.
  • The company will soon spin off its Agriculture division, which continues to see currency headwinds, especially from Brazil.
  • Electronics & Imaging revenues could decline 2% in 2019, due to softer smartphone demand and weakness in photovoltaics.
  • Nutrition & Biosciences could grow 4% to $7.1 billion in 2019, led by higher demand for protein solutions. Note that the segment revenue grew in low teens last year, reflecting the acquisition of FMC's health and nutrition business. The company is seeing volume gains in specialty proteins, and this trend will likely continue in the near term.
  • Transportation & Advance Polymers could grow 3%  to $5.8 billion in 2019, led by higher pricing for engineering polymers. Lower auto builds and inventory destocking impacted Q1 sales, and the company expects this trend to continue in Q2 as well, but improve in the second half of the year.
  • Safety & Construction could see 2% sales growth to $5.6 billion in 2019, led by its water solutions business. Tyvek protective garments and Kevlar high-strength materials drove the segment revenue growth in the recent past, and this trend could continue in the near term.
  • Currency headwinds will likely impact most of the segments in 2019.

How Much Can DowDuPont's Earnings Grow Based On The Expected Revenue Trends Above?

  • DowDuPont's full year 2019 earnings will likely be $2.33 per share, reflecting a 43.5% decline over 2018.
  • Consensus earnings estimate ~ 2.34
  • Earnings decline can be attributed to significantly lower revenues amid spin off of the Materials Science business, and a slight decline in margins.

What's DowDuPont's Fair Price Estimate Based On the Above?

  • Our price estimate of $34 for DowDuPont is based on a 15x forward price to earnings multiple, and adjusted earnings of $2.33 per share in 2019.
  • The earnings multiple for DowDuPont is in line with that of the average for the overall industry.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Stocks , US Markets , Investing Ideas
Referenced Symbols: GM

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