FocusWall Street bullish on DuPont despite profit cuts

22 April 2009 20:17  [Source: ICIS news]

By Joseph Chang

NEW YORK (ICIS news)--Many Wall Street analysts continue to be optimistic about US chemical giant DuPont despite cutting profit forecasts for 2009 and 2010, they said on Wednesday.

“Each cycle, DuPont presents two opportunities to investors. As an early cycle bellwether, it should rally before the economy turns,” said Jefferies & Co analyst Laurence Alexander, who reiterated his “buy” rating on the stock.

“And as a diversified conglomerate, it has the perennial promise of transformation and revival,” he added in a research note.

Alexander cut his 2009 earnings per share (EPS) estimate on DuPont by 30 cents to $1.70, at the bottom end of the company’s lower revised guidance of $1.70-2.10 for 2009. He also lowered his 2010 forecast by 10 cents to $2.35.

DuPont posted underlying EPS of $2.78 in 2008. Its previous EPS guidance for 2009 was $2.00-2.50.

“DuPont reported that destocking has slowed in building materials, electronics, industrial chemicals and products, TiO2, refinish paints and refrigerants, but continues in higher-end industrial products such as aramids,” he said.

Meanwhile, Credit Suisse analyst John McNulty also highlighted DuPont as an early cycle recovery play and maintained an “outperform” rating on the stock.

“Looking forward… we believe DuPont will be one of the better-performing large-cap names in the group, given its improving ag platform, the eventual recovery in its early cycle businesses, its above-average dividend yield and reasonable valuation at 6.7 times 2010 EBITDA [earnings before interest, tax, depreciation and amortisation],” McNulty said.

Shares of DuPont, which were up by 57 cents, or 2%, to $28.63 in early afternoon trading, sport a dividend yield of about 6%. The shares are up sharply from their low of $16.05, reached in March.

DuPont’s first-quarter profit fell by 59% to $488m (€376m) on 20% lower sales of $6.87bn as volumes fell by 19% year over year. Underlying earnings per share of 54 cents came in 2 cents ahead of Wall Street consensus estimates.

JPMorgan analyst Jeffrey Zekauskas lowered his 2009 EPS estimate on DuPont by 30 cents to $1.75, and his 2010 forecast by 45 cents to $2.05. However, he maintained his “overweight” rating.

“DuPont sustained a reasonable level of profitability in the first quarter despite exceptionally low volume trends, in our opinion,” Zekauskas said.

“Moreover, the company is maintaining good growth in prices of 5%, it is likely to be meaningfully advantaged from a raw material standpoint for the remainder of the year, and it has accelerated its cost-reduction programmes,” he added.

However, not all analysts are optimistic about DuPont.

BB&T Capital Markets analyst Frank Mitch, who maintained a “hold” rating on the company, pointed out that the ag and pharma businesses were the only segments posting profits, with the remaining businesses “bleeding red”.

Oppenheimer analyst Edward Yang, who rates DuPont “underperform”, noted that DuPont’s cut in earnings guidance was its fourth in the past six months.

“On average, the company has reduced its EPS outlook every 45 days since October. At some point, this may constitute a trend,” Yang said.

“There’s earnings risk in DuPont’s highly commoditised portfolio, and the dividend looks risky. Longer term, DuPont needs a ‘killer app’ and to narrow its ambiguous ‘science’ strategy,” he added.

($1 = €0.77)

For more on DuPont visit ICIS company intelligence
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By: Joseph Chang
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