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By Robert Gordo

E.I. DuPont de Numours and Company (DD), usually referred to as DuPont, is one of the country's oldest companies, tracing its roots back to 1802, when it sold gunpowder. At one time it was the owner of one of America's largest petroleum companies, Conoco, which it spun off in 1999, and it later merged with another oil company to become ConocoPhillips (COP). But control of that large quantity of petroleum from Conoco prior to the spinoff allowed DuPont to grow its unparalleled catalog of plastics and fibers.

DuPont's shares were recently trading at a little over $46. Its 52 week range is from $57.00 to $37.10. It has a market capitalization of nearly $43 billion, and a P/E of 12.5. It pays a dividend of $0.41 per quarter, for a yield of 3.6%.

DuPont had an excellent third quarter to 2011. Revenues were up 32% on a year over year basis, to about $9.2 billion. Its profits per share before special charges increased to $0.69 per share, a 72% improvement year over year.

A closer look inside the revenue numbers tells us not just what is going on with DuPont, but more broadly with the chemical industry in general. Of DuPont's 32% revenue gain, 15% was from price increases, 12% was from a better product mix sold, 4% was from currency gains, and 1% was from actual volume gains. Of DuPont's geographic segments, true volume actually fell in Canada and the United States by 1%. Volume also fell by 2% in Europe, Africa, and the Middle East, and fell by 1% in Asia Pacific. Only in the Latin America division was there actual volume growth, and there it was by 17%.

The product mix gains show a gradual shift from commodity products to proprietary and specialty products with higher margins. Performance Chemicals and Performance Materials are the two largest segments of the company by volume and profits. In particular, sales of DuPont's titanium oxide and other paint pigments drove revenues.

A longer term look at DuPont shows that the recent quarter was DuPont's eleventh consecutive quarter of exceeding analyst expectations. Yet the stock price is virtually unchanged from the price in mid 2008, and just over half of where it was in the late 1990's. I do not think the issue is a lack of company momentum or lack of growth. I think the real issue is a lack of investor optimism. DuPont would do well to have a CEO that is part executive, and part cheerleader.

DuPont may have found just that in its current leader, Ellen Kullman. On December 9, she revised downward by a dime DuPont's 2011 full year profit estimate, to from $3.87 to $3.95 per share. That compares with 2010 full year profit of $3.28 per share. Yet on the same day, she reiterated the company's five year plan first stated in 2010, calling for annual average 12% profit growth, and 7% revenue growth over the period. James Cramer, for one, bases much of his positive view of DuPont on that plan.

DuPont has other issues as well. Chief among those special charges in the third quarter of 2011 were costs related to tree damage caused by the herbicide, Imprelis. In its third quarter of 2011, DuPont took a charge of $75 million, or 5 cents per share, as a reserve against customer claims. DuPont has no idea how much more in claims in may have to pay, but is seeking insurance to reimburse these costs. DuPont also took a $171 million dollar charge in the quarter, for a total year to date of $274 million, or 21 cents per share, related to its $6.6 billion purchase of Danish biofuel, food and nutrition leader Danisco in the second quarter of 2011. While Danisco was DuPont's largest purchase so far in 2011, it was not the only purchase. Early in the year, DuPont purchased MECS, in an effort to expand DuPont's clean fuels program.

Compared to its chief rivals, BASF S.E. (BASFY.PK) and Dow Chemical Company (DOW) DuPont's secondary numbers are very solid.

ticker

$price; P/E

12 month trailing return on assets

12 month trailing return on equity

Gross Margin

Profit Margin

DD

46; 12.5

6.92%

32.40%

28.72%

9.25%

BASFY

69 ; 7.9

10.00%

30.30%

27.30%

8.57%

DOW

29; 11.8

4.23%

13.46%

15.77%

5.34%

DuPont and Dow Chemical Company trade at similar P/Es that are much higher than BASF's. That is likely because BASF does not pay a dividend.

DuPont is far more than a just a traditional chemical company. Its agriculture and nutrition group is not the most profitable division of the company, but does have tremendous growth prospects in a more populous world. DuPont also has many electronic products, such as circuitry used in cellphones and semiconductors, and a wide range of photovoltaic components used in solar energy systems.

I read an apt description of DuPont recently, that it is akin to a large tortoise. It may be big and slow, but has a very hard shell, can travel long distances, and live a very long life. If you like DuPont, it is a “buy and hold forever” stock. There will not be any quick doubling here. But neither will there be a collapse. DuPont does have plenty of long-term debt (about $12.5 billion), but its profits cover the interest by a factor of 8, and debt only equals 51% of capital. Its debt is rated AA- by Standard and Poors. I do not believe debt is a concern for DuPont.

Value investor James Barrow owns 5.45 million shares of DuPont, and analysts in general are mildly in favor of buying the stock, with a median rating of 2.3. Growth and income investors should consider buying into, or increasing their exposure to this market leading company.

Source: DuPont Is A Great Buy-And-Hold-Forever Stock