DuPont Looks Better Than Dow - Barron's

Shares of Dow Chemical (DOW) fell another 7% last week - a reflection the markets felt CEO Andrew Liveris's $18.8B takeover of Rohm and Haas (ROH) was too rich. Barron's Andrew Bary thinks they may have a point: 

The $78-a-share purchase price translates into about 21 times Rohm's estimated 2008 profits of $3.70 a share, and nearly 12 times estimated 2008 pre-tax cash flow, or earnings before interest, taxes, depreciation and amortization. By comparison, Dow Chemical trades for under 10 times projected '08 profits of $3.30 a share, and less than six times estimated '08 pre-tax cash flow of $6.7 billion. 

He contends investors would have been better served by a hefty share repurchase.

While investors may be tempted to pick up Dow at today's depressed prices, Bary notes peer DuPont (DD) looks like a better bet: It trades at just 12x 2008 profits (vs. 11x for DOW), and also has an attractive agriculture and seed business. Citigroup chemical analyst P.J. Juvekar says the ROH deal showcases DuPont - because its business mix is very similar to that of ROH. He thinks DuPont ($41) is worth $60.

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Todd Sullivan notes that with its "rock-solid safe" 5.25% yield - at $32/share - Dow buyers can snag themselves a better deal than stakeholder Warren Buffett.

Commenter Jim Hawthorne is unimpressed: "I was trying to remember when and if I ever saw a dog sicker than this one get better. I can't; and my whiskers are pretty much all grey now."

Comments

[Andy Singh:]

Finally a really good call by Barrons. I recently did a detailed analysis on DD at my site (which was also published here). I already have a small position in the stock, but apart from the dividend yield, here's 2 more things I really ike I about it that should add value in the longer term:

- Sales in emerging international markets grew 25 percent, led by Brazil, China, India and Eastern Europe. Given the growing international market and weakening US dollar it is a very positive sign that DuPont's market share and sales in overseas markets like China and India are rising.

- The company has a growing presence in the Solar (photovoltaic) market which it expects to grow by over 30% over the next several years . This rapidly growing market and technology could provide a key future growth catalyst for the company once the agriculture boom slows.

2008 Jul 13 09:30 PM

[Ames Tiedeman:]

I agree with the Baron's piece. The DD dividend is not bad and safe too.

2008 Jul 13 10:22 PM

[funfun:]

The much shrunken DuPont Company has the same marginal and marginalising Management embedded in the executive suites in Fortress Wilmington that has brought this one-time chemical icon a decade of decay and decline! DD is selling at 1997 prices! ...funfun..

2008 Jul 13 11:04 PM

[funfun:]

Some less than sophisticated investors may be overlooking the fact DuPont will be facing a BIG BLACK HOLE of vanishing earnings, circa $1 billion PTOI a year, from the sure and certain expiration of patent protection for two DuPont drugs, Cozaar® and Hyzaar® beginning in mere months at the end of this decade! ...funfun..

2008 Jul 14 09:08 AM