DuPont de Nemours (DD) stock climbed 0.9 % this morning. According to our metrics, the company seems fairly valued at today's prices. In the below analysis, we will put DuPont de Nemours's valuation in the context of its strong growth indicators and mixed market sentiment, which are also strong drivers for share price.
DuPont de Nemours, Inc. provides technology-based materials and solutions in the United States, Canada, the Asia Pacific, Latin America, Europe, the Middle East, and Africa. The large-cap Industrials company is based in Wilmington, United States and has 23,000 full time employees.
DD Has a Higher P/E Ratio Than the Sector Average
Compared to the Industrials sector's average of 20.49, DuPont de Nemours has a trailing twelve month price to earnings (P/E) ratio of 37.5 and an expected P/E ratio of 15.4. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $2.03 or forward earnings per share of $4.94.
Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since DuPont de Nemours's P/E ratio is higher than its sector average of 20.49, we can deduce that the market is overvaluing the company's earnings.
DuPont de Nemours Is Fairly Valued in Terms of Expected Growth
Another factor pointing to DuPont de Nemours's value is its PEG ratio of 1.25. This is the stock's price to earnings ratio divided by its estimated earnings growth rate. If the resulting ratio is near or lower than 1 -- but higher than 0 -- its indicates that the company is faitly valued in terms of expected growth.
DD Has an Average P/B Ratio
Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.
Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For DuPont de Nemours, the P/B value is 1.34 while the average for the Industrials sector is 3.78.
DD's Weak Cash Flow Generation Is Troubling
The table below shows that DuPont de Nemours is not generating enough cash. A well run company will generally have cash flows that reflect the strength of its underlying business, and in DuPont de Nemours's case, free cash flow is growing at an average rate of 0.0% with a coefficient of variability of 15417770111.8%. We can also see that cash flows from operations are evolving at a 0.0% rate, versus 0.0%:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-15 | 588,000 | -743,000 | 1,331,000 | -58.04 |
| 2022-02-11 | 2,281,000 | -891,000 | 3,172,000 | -40.03 |
| 2021-02-12 | 4,095,000 | -1,194,000 | 5,289,000 | 36.28 |
| 2020-02-14 | 1,409,000 | -2,472,000 | 3,881,000 | -55.3 |
| 2019-02-11 | 4,731,000 | -3,951,000 | 8,682,000 | 216.75 |
| 2018-02-03 | -765,000 | -3,506,000 | 2,741,000 |
DuPont de Nemours's Margins Are Strong
If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing DuPont de Nemours's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.
DuPont de Nemours's Gross Margins
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-15 | 13,017,000 | -8,402,000 | 35 | -5.41 |
| 2022-02-11 | 12,566,000 | -7,971,000 | 37 | 0.0 |
| 2021-02-12 | 11,128,000 | -7,063,000 | 37 | 5.71 |
| 2020-02-14 | 15,436,000 | -10,026,000 | 35 | 9.38 |
| 2019-02-11 | 22,594,000 | -15,302,000 | 32 | 60.0 |
| 2018-02-03 | 62,484,000 | -49,791,000 | 20 |
DuPont de Nemours's Operating Margins
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-15 | 13,017,000 | -2,593,000 | 16 | 6.67 |
| 2022-02-11 | 12,566,000 | -2,725,000 | 15 | 15.38 |
| 2021-02-12 | 11,128,000 | -2,599,000 | 13 | 0.0 |
| 2020-02-14 | 15,436,000 | -3,447,000 | 13 | 30.0 |
| 2019-02-11 | 22,594,000 | -5,142,000 | 10 | 11.11 |
| 2018-02-03 | 62,484,000 | -7,218,000 | 9 |
DuPont de Nemours's cost of revenue is growing at a rate of -0.0% in contrast to 10.6% for operating expenses. Sales revenues, on the other hand, have experienced a 0.0% growth rate. As a result, the average gross margins growth is 0.2 and the average operating margins growth rate is 9.5, with coefficients of variability of 19.8% and 21.6% respectively.
We See Mixed Market Signals Regarding DD
DuPont de Nemours has an average rating of buy and target prices ranging from $108.0 to $76.0. At its current price of $76.04, the company is trading -17.15% away from its target price of $91.78. 1.2% of the company's shares are linked to short positions, and 77.9% of the shares are owned by institutional investors.
| Date Reported | Holder | Percentage | Shares | Value |
|---|---|---|---|---|
| 2023-06-30 | Vanguard Group Inc | 10% | 44,936,302 | $3,416,956,445 |
| 2023-06-30 | Blackrock Inc. | 7% | 32,352,398 | $2,460,076,373 |
| 2023-06-30 | Massachusetts Financial Services Co. | 5% | 23,410,179 | $1,780,110,032 |
| 2023-06-30 | State Street Corporation | 4% | 18,536,772 | $1,409,536,159 |
| 2023-06-30 | FMR, LLC | 3% | 13,843,691 | $1,052,674,276 |
| 2023-06-30 | BNP Paribas Arbitrage, SNC | 3% | 12,571,480 | $955,935,350 |
| 2023-06-30 | Geode Capital Management, LLC | 2% | 9,653,367 | $734,042,035 |
| 2023-06-30 | Invesco Ltd. | 2% | 9,480,581 | $720,903,387 |
| 2023-06-30 | Boston Partners | 2% | 8,087,175 | $614,948,794 |
| 2023-06-30 | Nuveen Asset Management, LLC | 2% | 7,704,546 | $585,853,684 |
