DowDuPont: Down But Not Out

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WG Investment Research


  • The company recently reported Q4 2017 results that beat the consensus revenue and earnings estimates.
  • The stock is down on a YTD basis but I believe that it would be wise for long-term investors to use any pullbacks as buying opportunities.
  • DWDP shares are a long-term buy at today's price.

On February 1, 2018, DowDuPont (DWDP) reported Q4 2017 financial results that beat analysts' top- and bottom-line estimates, but the company's stock was pulled down with the broader market selloff.

ChartDWDP Price data by YCharts

DWDP shares also have underperformed the S&P 500 over the last year, but I expect for this to change in 2018 and for the company's stock to be a market beater over the next two years. To this point, I believe that DowDuPont is now in a position to create a tremendous amount of shareholder value over the next 18-24 months and, in my opinion, the company's latest results/guidance showed me that my investment thesis is still intact.

The Company's Q4 2017 Results And Forward Guidance Point To A Strong 2018

For Q4 2017, DowDuPont beat the consensus revenue and adjusted EPS estimates by ~3% and ~24%, respectively. Management also increased the merger-related cost synergy estimate by 10% (from $3.0B to $3.3B). Moreover, this newly created entity saw a nice uptick of ~13% in net sales when compared to the prior year (on a pro forma basis), which was a result of broad-based growth almost across the board, with Materials Science being the real standout (Q4 2017 sales up ~15% and operating EBITDA up ~56%).

Source: DowDuPont's Q4 2017 Earnings Press Release

DowDuPont's top-line numbers were extremely impressive, as the company's net sales growth was driven by both volume and price increases in each of the operating segments.

Net income, on the other hand, left investors wanting more. As expected, the company's net income was down big (over 50%) due largely to merger-related charges (i.e., restructuring charges, amortization of intangible assets, etc.) but it is important to remember that these are short-term headwinds. In addition, restructuring charges are typically front-end loaded so there should be less noise in the numbers as the company progresses through 2018/2019.

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This article was written by

WG Investment Research profile picture
Our President and CIO is a CPA with experience in public accounting and the financial services industry. He earned his Master of Accountancy degree in 2008 and his B.S. in Business Management in 2007. He is also a Level III CFA candidate. He has been intrigued by the market from the start. Over the years, he has learned that long-term investing is a discipline that, if followed, will help contribute to building lasting wealth. As such, most of our articles will be about the investments that we plan to hold for at least 3 to 5 years, as long as the company's story does not change. As a Seeking Alpha contributor, our main goal is to write about the companies that are key to our portfolio with the hope of promoting discussion (for or against the investment) from others within the SA community.Please visit our website for more information about W.G. Investment Research LLC.

Disclosure: I am/we are long DWDP. 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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