DuPont Rides On Its Agribusiness

| About: E. I. (DD)

E. I. du Pont de Nemours (NYSE:DD), has been successful in delivering cutting-edge technology to multiple markets. DuPont will invest $10 billion globally in R&D to develop the food, agriculture, and nutrition sectors by the end of 2020. Its "DuPont Aproach Prima" fungicide has been granted registration approval by the U.S. Environmental Protection Agency, or EPA. DuPont plans to launch the product in the market from the beginning of 2014. Aproach prima is an upgraded version of the company's highly successful fungicide "DuPont Aproach."

"Aproach Prima" has two modes of action, one to protect yield potential and the second to address resistant fungal disease for corn, soybean, and wheat growers. Aproach Prima was successful in reducing the incidence of disease and severity levels, which led to healthier plants and also increased the yield. In soybeans, Aproach Prima was able to decrease severity of resistant frogeye leaf-spot by more than 67%, and it successfully increased yield by 6 bushels per acre over soybeans not treated with Aproach Prima. Aproach Prima was able to decrease the incidence of soybean rust by 92% compared with untreated control plots, while Quilt Xcel, a product offered by DuPont's rival Syngenta (NYSE:SYT), only reduced rust incidence by 42%. In seed corn, Aproach Prima was able to maintain green leaf area more effectively and successfully increased the yield by over 11 bushels per acre.

In 2012, the revenue from DuPont's fungicides accounted for around $620 million. Fungicide revenue has shown solid growth in the first nine months of 2013. I think "Aproach Prima" will be a game changer in the fungicide market, as it is highly productive and efficient. It will help DuPont increase its revenues from the fungicide market. With the launch of "Approach Prima," I think the company will be successful in increasing its market share substantially in the coming years.

Partnering with Deere to enhance precision farming services.

DuPont Pioneer, the seed producing subsidiary of DuPont, recently entered a partnership with Deere & Co (DE), the world's biggest maker of agricultural equipment. Through this partnership, the companies will provide farmers with enhanced agriculture analyses, which will help maximize crop production. Pioneer will combine its software Field360 with Deere's Wireless Data Transfer technology. Deere's machinery will collect the agricultural data and send it to servers operated by Deere. DuPont Pioneer analysts will then examine the data, analyze it, prepare reports, and deliver those reports to farmers.

Previously, DuPont counseled farmers on the best seed to plant in their particular farms, but the scope for advisory will now increase. Now the company can incorporate analytics on an array of data points, such as soil types, timing of fungicide application, weather patterns, and pest management. This farm related data analytics could be monetized to increase the company's revenue.

The deal will also help DuPont compete with Monsanto (NYSE:MON), the world's biggest seed producer, as it expands into the same area. Last month Monsanto bought Climate Corporation, a leader in weather and agricultural data science, for $930 million. With this acquisition, Monsanto can provide farmers with weather and field data, which will help increase the productivity of the crops. This acquisition will help Monsanto expand both the near and long-term growth opportunities of its Integrated Farming Systems platform and R&D pipeline. So DuPont's deal with Deere is a strategically good one to counter the foray of Monsanto into farm data analytics, apart from increasing its seed prescription service to larger number of farmers.

Over the past year, DuPont mapped around 20 million acres using the customer data available with it. Out of this, the company provided seeding prescriptions for around 1.5 million acres through its Field360 product, for which it charges $500 per farm. It means the company provides prescription services to only around 7.5% of total mapped acres. It indicates that the company has a scope to tap around 92.5% of the total mapped acres. With enhanced and additional services in place, I expect total acreage under the company's services to increase in the coming days, which will increase the revenue from its agricultural services. DuPont plans to charge more for its prescription services starting next year, which will increase the revenue in the coming quarters. According to Markets and Markets, the global market for precision farming will grow at a CAGR of 13.36% to $3.72 billion by 2018. I believe DuPont, with a large customer base, will be able to capture a significant share from this market in the coming years and provide incremental revenue to its agriculture segment.


Going forward, I expect DuPont' Agriculture segment to grow at very healthy rate. The launch of its new fungicide "Aproach Prima" will boost the sales of its fungicides, so the company's revenue should increase in the coming years. The company's partnership with Deere will increase its revenue from farm prescription services. The company, at present, is trading at 20.9 times its earnings. The forward Price to earnings, or P/E, ratio for the company is 13.8, which indicates that the company's stock price will move up in the coming days. I am bullish about the stock's long-term performance and expect the stock's bull run to continue.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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