DuPont de Nemours, Inc. DD is benefiting from its cost and productivity actions, investment in innovation and new product development amid certain headwinds including a weak demand environment.
The company’s shares are down 50.4% year to date, compared with 40.8% decline recorded by the industry.
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Favoring the Stock?
DuPont is gaining from cost synergy savings and productivity improvement actions. It achieved more than $500 million in productivity and cost synergy savings in 2019. The company sees $215 million of savings this year from its synergy program and previous cost actions.
The company is also taking additional cost actions in 2020, which is expected to deliver roughly $90 million of savings. Overall, DuPont aims to deliver more than $300 million in gross cost savings this year. The company expects its cost actions to contribute 10 cents in its adjusted earnings per share in 2020. The company’s cost and productivity initiatives should drive margin expansion.
Moreover, DuPont remains focused on driving growth though innovation and new product development. New product launches are driving growth in automotive electrification and water solutions. The company’s innovation-driven investment is focused on several high-growth areas. It remains committed to drive returns from its R&D investment.
The company also remains focused on driving cash flow and shareholder value. It looks to boost cash flow through working capital productivity and earnings growth. DuPont also remains committed to effective capital allocation. The company has returned more than $1.3 billion to shareholders since Jun 1, 2019 including $750 million of share buybacks. It expects to return roughly $900 million in dividends this year.
A Few Concerns
DuPont faces headwind from weak demand across some of its businesses. Demand weakness in the semiconductor market is affecting volumes in the company’s Electronics & Imaging business unit. Moreover, softness in the automotive market is hurting volumes in North America and Europe. The company is also seeing lower demand and inventory destocking in the electronics end-market. Demand in these major markets is expected remain weak over the near term.
The company is also facing pressure from lower nylon prices as witnessed in the last reported quarter. Lower demand contributed to weak pricing. Nylon pricing weakness is also expected to hurt first-quarter 2020 sales as reflected in the company’s guidance. DuPont expects its net sales for the quarter to be down mid-single digits on a year-over-year basis factoring in soft pricing. It also expects prices to be down mid-single digits in its Transportation & Industrial division in 2020. The company sees pricing headwind of roughly $200-$250 million this year.
Moreover, higher manufacturing costs are likely to affect margins. The company’s Safety & Construction unit faces manufacturing headwinds (due to unplanned outages) which are expected to weigh on margins in this business in the first quarter. Manufacturing headwinds are also likely to hurt volumes in this segment in the quarter and affect the company’s top line.
DuPont de Nemours, Inc. Price and Consensus
DuPont de Nemours, Inc. price-consensus-chart | DuPont de Nemours, Inc. Quote
Stocks to Consider
Better-ranked stocks worth considering in the basic materials space are The Scotts Miracle-Gro Company SMG, NovaGold Resources Inc. NG and Newmont Corporation NEM.
Scotts Miracle-Gro has an expected earnings growth rate of 15.4% for the current fiscal year. The company’s shares have gained roughly 24% in the past year. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
NovaGold has a projected earnings growth rate of 11.1% for the current year. It currently carries a Zacks Rank #2 (Buy). The company’s shares have surged roughly 96% in a year.
Newmont has a projected earnings growth rate of 90.2% for the current year. The company’s shares have rallied around 29% in a year. It currently has a Zacks Rank #2.
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