A Value Play Among Institutions That’s Also Perfect for the Small …If E. I. du Pont de Nemours and Company (DD) didn’t have its burgeoning agriculture business, the stock would be in the tank. Instead, this slow-growth conglomerate has really surprised with its performance on the stock market this year. It’s definitely a value play among institutional investors—and a dividend one at that.
With a current dividend yield of approximately 3.2% and a price-to-earnings ratio of around 12, DuPont is seemingly breaking out of a long-term price consolidation on the stock market. It’s been 13 years since the position convincingly broke through $50.00 a share, and all the while, the company’s agriculture division has been flourishing.
If the rest of the company’s operations could grow, its share price would be much higher.
In the second quarter of 2013, the company’s total revenues actually fell to $9.84 billion, down from $9.92 billion in the second quarter of 2012.
Earnings also fell to $1.03 billion, or $1.11 per diluted share, down slightly from earnings of $1.17 billion, or $1.23 per diluted share, in the comparable quarter last year.
Interestingly, the company’s cash position soared along with shareholders’ equity. (See “Why DuPont’s Earnings Results Are So Typical for This Stock Market.”)
DuPont said that its agriculture sales grew a solid seven percent in the most recent quarter due to rising prices in global seed sales and stronger volumes in insecticides and fungicides. The two latter components are a huge part of global agriculture business.
Revealing the lackluster business conditions in emerging markets (including China, India, Latin America, and Eastern Europe) the company posted a mere one-percent gain in total sales in emerging markets to $2.8 billion. Higher volumes were offset by weaker local prices and currency translation.
DuPont’s agriculture-specific business is its largest, coming in with seven-percent sales growth in the second quarter to $3.6 billion. Six percent of this growth was due to price increases.
As I’ve written before, a spin-off of DuPont’s agriculture holdings would make for an excellent asset on the stock market, but it’s unlikely the company would go for it, because all of its other operating divisions are basically in decline.
DuPont declared a third-quarter dividend of $0.45 per share payable September 12, 2013 to shareholders of record on August 15, 2013. This was the same amount as paid in the second quarter, but with a growing cash hoard, a dividend increase is even more likely in the fourth quarter.
This company basically hasn’t done anything on the stock market since 1996/1997, but the way things are looking, this could very well change for the better going into 2014.
Management continues to pare down exposure to its performance chemicals division and U.S. agriculture incomes are expected to be a record this year.
It’s always odd for a company’s share price to be rising on declining earnings. In this specific case, it’s the value, the dividends, and a little hope of growth in the future.
Company management said it expects its earnings picture to improve in the bottom half of the year. Not surprisingly, many slow-growth companies say this.
If it happens, however, this stock will move higher. The marketplace wants to bid DuPont’s shares. It just needs to see improvement in its non-agriculture businesses.
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