One of Wall Street's biggest winners of the day is DuPont de Nemours, a chemicals company whose shares have climbed 7.3% to a price of $65.7 -- 13.31% below its average analyst target price of $75.79.
The average analyst rating for the stock is buy. DD may have outstripped the S&P 500 index by 7.0% so far today, but it has lagged behind the index by 40.0% over the last year, returning -21.3%.
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 company belongs to the industrials sector, which generally includes cyclical companies -- with the exception of conglomerates whose business may span several industries. Cyclical companies experience higher sales during periods of economic expanision, and worsening outlooks during recessions.
DuPont de Nemours's trailing 12 month P/E ratio is 33.4, based on its trailing EPS of $1.97. The company has a forward P/E ratio of 18.3 according to its forward EPS of $3.59 -- which is an estimate of what its earnings will look like in the next quarter.
As of the first quarter of 2023, the average Price to Earnings (P/E) ratio for US industrials companies is 22.19, and the S&P 500 has an average of 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
DD’s price to earnings ratio can be divided by its projected five-year growth rate, to give us the price to earnings, or PEG ratio. This allows us to put its earnings valuation in the context of its growth expectations which is useful because companies with low P/E ratios often have low growth, which means they actually do not present an attractive value.
When we perform the calculation for DuPont de Nemours, we obtain a PEG ratio of 2.46, which indicates that the company is overvalued compared to its growth prospects. The weakness with PEG ratios is that they rely on expected growth estimates, which of course may not turn out as expected.
DuPont de Nemours's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to the company's operating cash flows minus its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 722,000 | 715,000 | 7,000 | 104.52 |
| 2022 | 588,000 | 743,000 | -155,000 | -111.15 |
| 2021 | 2,281,000 | 891,000 | 1,390,000 | 35.08 |
| 2020 | 1,301,000 | 272,000 | 1,029,000 | 1044.04 |
| 2019 | 1,383,000 | 1,492,000 | -109,000 | -103.13 |
| 2018 | 4,731,000 | 1,244,000 | 3,487,000 |
- Average free cash flow: $941.5 Million
- Average free cash flown growth rate: -66.6 %
- Coefficient of variability (lower numbers indicating more stability): 299.61 %
With its positive cash flow, the company can not only re-invest in its business, it can offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in DD have received an annualized dividend yield of 2.3% on their capital.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (market value divided by book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method.
DuPont de Nemours has a P/B ratio of 1.17. This indicates that the market value of the company exceeds its book value by a factor of more than 1, but is still below the average P/B ratio of the Industrials sector, which stood at 4.06 as of the first quarter of 2023.
DuPont de Nemours is by most measures overvalued because it has a higher P/E ratio than its sector average, a lower P/B ratio than its sector average, and positive cash flows with a downwards trend. The stock has poor growth indicators because it has a an inflated PEG ratio and weak operating margins with a positive growth rate. We hope you enjoyed this overview of DD's fundamentals.
