Seeking Alpha
Long/short equity, special situations, value
Profile| Send Message| ()  

Shares of E I Du Pont De Nemours (DD), better known as DuPont, rose more than 2% in after hours trading on Tuesday. The diversified agricultural, electronics and communication, chemical and industrial bioscience firm held a good news show for investors after the market close.

Good News

DuPont confirmed its full year outlook for the year of 2012 and issued an upbeat outlook for the coming year. At the same time, the board of directors announced a sizable $1 billion share repurchase program.

For the full year of 2012, DuPont expects earnings per share to come in at the high end of the previously guided range of $3.25-$3.30 per diluted share.

CEO and Chairman Ellen Kullman commented on the announcements:

"Our fourth quarter performance is as expected and at the high end of our previous guidance. I am pleased that our board authorized a significant stock repurchase program. This program reflects our confidence in the underlying fundamentals of our business as well as our commitment to deliver value to our shareholders. The buyback delivers meaningful near-term value with the remaining proceeds from the divestiture providing us the ability to further strengthen our balance sheet, preserving our flexibility to invest in selective growth opportunities."

Furthermore, DuPont looks with confidence into 2013. For the full year, the company expects low to mid single-digit earnings growth, based on low single-digit sales growth.

The company expects a solid performance across the board, with the exception of the performance chemicals business. Margins in the division are expected to fall some 6-7% in 2013. Excluding the negative impact of the chemicals division, earnings growth is expected to come in at the high-teens.

Valuation

DuPont ended its third quarter with $3.52 billion in cash, equivalents and short-term investments. The company operates with $15.07 billion in short- and long-term debt, for a net debt position of roughly $11.55 billion.

For the first nine months of 2012, DuPont generated revenues of $27.5 billion. The company net earned $2.68 billion, or $2.86 per diluted share. Earnings include a $0.24 per share gain related to discontinued operations. Full year revenues could come in at $35 billion, on which the company could earn $3.30 per diluted share.

Factoring in a 2% jump in after hours trading, the market values DuPont at roughly $41.5 billion. This values the firm at roughly 1.2 times annual revenues and 13-14 times annual revenues.

DuPont currently pays a quarterly dividend of $0.43 per share, for an annual dividend yield of 4.0%.

Some Historical Perspective

Year to date, shares of DuPont have fallen some 3%. Shares rose from $45 in January to highs of $57 during spring. Shares fell at the end of October, after the company lowered its full year guidance, and are currently exchanging hands around $44 per share.

Shares of DuPont fell to lows of $17 during the financial crisis in 2009. Shares steadily rose to the mid-$50s in 2011 and 2012, but have fallen back some 20% from that point in time. Between 2008 and 2012, DuPont grew annual revenues from $30.5 billion to an estimated $35 billion. Net earnings rose from $2.0 billion in 2008 to an expected $3.1 billion this year.

Investment Thesis

Shares in DuPont have been lagging the general market, mostly due to the poor performance of its performance coating business. Furthermore, higher natural gas prices impact the profitability of the chemical division.

As a result, DuPont has commenced a restructuring plan, which would deliver pre-tax costs savings of an estimated $450 million. Cuts will be made at the corporate level and across businesses. As a result, some 1,500 jobs will be made redundant.

Besides cutting costs, DuPont recently announced the sale of its Performance Coatings business for $4.9 billion to The Carlyle Group (CG). DuPont hopes that the deal will be finalized in the first quarter of the coming year. The deal will furthermore lower pension obligations of DuPont by some $250 million, and will yield estimated net proceeds of $4 billion.

In today's after-hours trading session, investors seem pleased that the profit warning issued at the end of October seems mostly a one-off. DuPont now guides for earnings to come in at the high end of the lowered earnings range.

Besides a confident outlook for 2013, the market is favorably surprised by the $1 billion share repurchase program. The plan is sufficient to retire roughly 2.5% of total shares outstanding. If executed in a year's time, the stock would see average daily buy volume of roughly a hundred thousand shares, or almost 2% of average daily trading volume over the past month.

The prospects for DuPont look good. The divestiture of the performance coating business reduces leverage to acceptable levels. Shares trade at fair multiples, however, I see few triggers for short-term gains. Investors looking for yield could pick up some shares at these levels, receiving some 4% in the meantime. Don't expect spectacular capital gains, but simply await your dividend paycheck every quarter.

Source: DuPont - Decent Full Year 2013 Outlook And Share Repurchases Send Shares Higher