Seeking Alpha
Long only, value, growth, dividend investing
Profile| Send Message|
( followers)  

Summary

  • This was the quarter to raise the dividend but not such action was made.
  • The stock is inexpensively valued based on 2015 earnings estimates.
  • This is still a great story due to the spinoff of the performance chemicals division.

The last time I wrote about E.I. du Pont de Nemours and Company (NYSE:DD) I stated, "Due to the tiring bullish technicals, deteriorating return on equity, and fair valuation on growth potential I'm not going to be buying a position at this price." After the writing the article it increased 3.72% versus the 2.1% gain the S&P 500 (NYSEARCA:SPY) posted. It's quite unfortunate that I didn't plow additional money into the company at the time. DuPont is a diversified technology company operating in the segments of Agriculture, Electronics & Communications, Industrial Biosciences, Nutrition & Health, Performance Chemicals, Performance Coatings, Performance Materials, Safety & Protection, and Pharmaceuticals.

On April 17, 2014, the company reported first quarter earnings of $1.58 per share, which missed the consensus of analysts' estimates by $0.01. In the past year the company's stock is up 22.21% excluding dividends (up 24.39% including dividends), and is beating the S&P 500, which has gained 14.98% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth buying more shares of the company right now for the basic materials sector of my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 21.79, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 13.95 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $4.86 per share and I'd consider the stock inexpensive until about $73. The 1-year PEG ratio (1.66), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 13.15%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 13.15%. Below is a comparison table of the fundamental metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

22Dec13

62.71

21.85

14.55

4.31

65

1.77

12.32

20Feb14

65.35

21.50

13.47

4.85

73

1.86

11.57

10May14

67.78

21.79

13.95

4.86

73

1.66

13.15

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 2.66% with a payout ratio of 58% of trailing 12-month earnings while sporting return on assets, equity and investment values of 5.8%, 19.9% and 10.8%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 2.66% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financial metrics for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

22Dec13

2.87

63

9.4

39.1

11.5

20Feb14

2.75

59

9.4

35.4

11.6

10May14

2.66

58

5.8

19.9

10.8

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling in middle-ground territory with a current value of 56.54. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars increasing in height, indicating bullish momentum. As for the stock price itself ($67.78), I'm looking at $68.79 to act as resistance and $67.35 to act as support for a risk/reward ratio which plays out to be -0.63% to 1.49%.

Recent News

  1. The company declared a quarterly dividend of $0.45 per share. The dividend has an ex-date of 13May14 and pay date of 12Jun14 for a yield of 2.67%.
  2. The company reported first quarter earnings which missed estimates on the top and bottom lines. Earnings per share were $1.58 on revenue of 10.1 billion versus expectations of $1.59 per share on revenue of $10.45 billion
  3. The company attributed at least a $0.07 per share reduction to severe winter conditions in the first quarter because of lost sales in addition higher operating costs. The company however did reaffirm guidance for 2014 with earnings between $4.20 and $4.45.

Conclusion

With the company set to spin off its performance chemicals division there is a lot of potential for value to be unlocked. Fundamentally the company is inexpensively valued based on future earnings estimates but fairly valued based on next year's earnings growth potential. Financially, this was supposed to be the quarter the company should have raised the dividend but that didn't come to fruition and concerns me just a bit. On a technical basis I believe the stock may have a little upside to it in the short term. Due to the slightly bullish technicals, no increase to the dividend this quarter, and overall market craziness, I will pull the trigger here right now but only on a small batch.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: DuPont Dividend Announcement Should Have The Challenge Flag Thrown At It