DuPont: Fairly Valued Shares Following A Q4 Rally, Positive Technicals For 2023
Summary
- The Materials sector has powered the S&P 500 higher since early October.
- Chemicals equities, while there is no ETF, are an investable group featuring strong momentum and still reasonable valuations.
- I see a mixed fundamental and technical situation with DuPont, but a long position is warranted.
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Materials stocks have led the S&P 500 higher since late last year. Within the space are Chemical names that have been particularly strong. Despite fears of a recession, the industry has benefited from a much weaker U.S. dollar. All eyes will now be on earnings over the next few weeks to see if there is some CEO optimism after impressive price action.
One of the sector’s biggest components features mixed valuation and technical features. Let’s check out Double-D DuPont.
Chemicals On Fire
Finviz
According to Bank of America Global Research, DuPont de Nemours (NYSE:DD), the former Specialty Products segment of DowDuPont, is a diversified specialty chemical company. The company operates through two primary reporting segments: Electronics & Industrial and Water & Protection. These businesses are allocated based on process technology, product application, and end-market exposures.
The Delaware-based $36.2 billion market cap Chemicals industry company within the Materials sector trades at a near-market 20.4 trailing 12-month GAAP price-to-earnings ratio and pays a market-rate 1.8% dividend yield, according to The Wall Street Journal.
The stock was recently downgraded by analysts at Deutsche Bank, but there are bullish tailwinds from a $5 billion share repurchase program that’s in place. Moreover, with positive clarity following the rail strike being resolved, there is some reason to hope for better times in 2023.
On valuation, analysts at BofA see earnings having fallen markedly in 2022, but EPS growth is seen this year with a still-robust growth rate in 2024. The Bloomberg consensus earnings outlook is about on par with what BofA projects. Dividends, meanwhile, are expected to rise more steadily than per-share profits, but DD’s yield is not all that high.
Both DuPont’s operating and GAAP earnings multiples are simply near the broad stock market’s. So, with rebounding but not massive growth over the coming quarters and an average P/E, the stock looks appropriately priced to me. On the plus side, DD’s forward operating PEG ratio is just 1.17 - below its sector median of 1.97 and the stock’s 5-year average of 2.55. So, on those relative valuation looks, there’s some upside potential.
DuPont: Earnings, Valuation, Dividend Yield Forecasts
BofA Global Research
Looking ahead, corporate event data provided by Wall Street Horizon shows a confirmed Q4 2022 earnings date of Tuesday, February 7 BMO with a conference call immediately after results hit the tape. You can listen live here. The calendar is light on volatility catalysts aside from next month’s reporting date.
Corporate Event Calendar
Wall Street Horizon
The Technical Take
Like DD’s fundamental valuation assessment, the technical picture is mixed. Notice in the chart below that shares are above a key support line that rests near $66. Moreover, the stock broke out above a downtrend resistance line late last year during its massive 40%-plus rally from mid-October to mid-November. DD then exhibited a bull flag pattern which resolved higher to kick off 2023.
$72 appears to be a key spot in the short term but I see resistance as evidenced by the volume-by-price indicator on the left in the $74 to $80 range – that's tough overhead supply to bust through. Additionally, I spot bearish RSI divergence on this latest upward move. Still, the 200-day moving average has flattened from being downward sloping, which is an arrow in the bulls’ quiver.
Overall, I think a long position now with a stop under $65 makes sense.
DD: Holding Above Support, Eyeing Bearish Divergence
Stockcharts.com
The Bottom Line
With a decent valuation and some key price levels of importance, I am a soft buy on DuPont here – a move above $86 would be a long-term bullish and we should know more on the fundamentals after the Feb. 7 earnings date.
This article was written by
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.