E I Du Pont De Nemours and Co. (DD) Quarterly Valuation

500px-DuPont.svg

Du Pont is one of the world’s largest companies, which makes it easy to look at it and simply say that due to its incredible size it should be suitable for defensive investors.  However, Intelligent Investors must do more analysis than that, and will have specific requirements of companies in which they choose to invest.  Only through comparing the company’s intrinsic value to the market place can an investor truly get a sense of whether the company is a good investment.  In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Du Pont fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Dupont E I De Nemours & Co, formerly E. I. du Pont de Nemours and Company, manufacturing, seed production or selling activities and some are distributors of products manufactured by the Company. The Company’s segments are Agriculture, Electronics & Communications, Industrial Biosciences, Nutrition & Health, Performance Chemicals, Performance Coatings, Performance Materials, Safety & Protection and Pharmaceuticals. During the year ended December 31, 2011, the Electronics & Communications segment completed the acquisition of Innovalight, Inc., a company specializing in advanced silicon inks and process technologies that increase the efficiency of crystalline silicon solar cells. As of September 22, 2011, it acquired Danisco A/S (Danisco), a global enzyme and specialty food ingredients company. In May 2012, it acquired from Bunge full ownership of the Solae, LLC joint venture. In February 2013, the Company sold DuPont Performance Coatings.

DD Chart

DD data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

MG Value $45.79
MG Opinion Overvalued
Value Based on 3% Growth $43.68
Value Based on 0% Growth $25.61
Market Implied Growth Rate 6.02%
Net Current Asset Value (NCAV) -$11.74
PEmg 20.55
Current Ratio 1.82
PB Ratio 3.54

Balance Sheet – 12/31/2013

Current Assets $24,384,000,000
Current Liabilities $13,367,000,000
Total Debt $10,741,000,000
Total Assets $51,499,000,000
Intangible Assets $9,809,000,000
Total Liabilities $35,270,000,000
Outstanding Shares 926,990,000

Earnings Per Share

2013 $3.04
2012 $2.61
2011 $3.68
2010 $3.29
2009 $1.93
2008 $2.20
2007 $3.22
2006 $3.38
2005 $2.07
2004 $1.77
2003 $0.99
2002 $1.83

Earnings Per Share – ModernGraham 

2013 $3.01
2012 $2.91
2011 $3.00
2010 $2.71
2009 $2.46
2008 $2.66

Dividend History

DD Dividend Chart

DD Dividend data by YCharts

Conclusion:

Du Pont is a solid company for Enterprising Investors to have on their watch list, but not Defensive Investors.  For Defensive Investors, the company’s current ratio is just a little too low, the company has not sufficiently grown its earnings over the ten year period, and the company is trading at high PEmg and PB ratios.  Enterprising Investors, on the other hand, could not be happier as the company has passed all of the requirements of this investor type.  As a result, value investors seeking to follow the Enterprising Investor portion of the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research, including a review of ModernGraham’s analysis of Dow Chemical (DOW).  From a valuation side of things, Du Pont has grown its EPSmg (normalized earnings) from $2.46 in 2009 to $3.01 for 2013.  This level of growth does not quite support the market’s current implied growth estimate of 6.02%, and accordingly the ModernGraham valuation model returns an intrinsic value that is less than the market’s current price.  Therefore, the company appears to be overvalued at the present time.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Du Pont (DD)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Du Pont (DD) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.

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2 comments for “E I Du Pont De Nemours and Co. (DD) Quarterly Valuation

  1. John Galt
    February 8, 2014 at 5:11 am

    Why do you only provide 6 years of EPS mg in your article. I believe in liars, damm liars and statistics. Or in biblical terms, I am a doubting Thomas.

    • February 8, 2014 at 7:38 am

      John, I only list 6 years of EPSmg merely because of the nature of the calculation. EPSmg is based on the last 5 years of earnings data, so the earliest EPSmg I provide is based on EPS data from about 10-11 years ago. Since only the last 10 years of EPS data is readily available on MSN, I only provide EPSmg for 6 years.

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