DuPont looks very undervalued right now

DuPont looks very undervalued right now
Written by:
Michael Harris
3rd January, 15:13
Updated: 13th April, 01:32
  • DuPont underperformed in 2019
  • Company’s leadership took important decision to help the business get back on track of profitability
  • Many analysts believe that DuPont stock is undervalued

While the S&P 500 rallied almost 30% in 2019, the DuPont de Nemours stock lost more than 13%. Still, many analysts believe that this stock is currently undervalued and there is plenty of room for growth in 2020.

Business overview

DuPont de Nemours, better known as DuPont, as it is known today, was created in 2017 when Dow Chemical Co. and E. I. Du Pont De Nemours and Company merged in order to save around $3 billion in cost synergies and a possible $1 billion in growth synergies.

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As if that wasn’t enough, DuPont’s management decided in December last year to create a new $45.4 billion consumer goods giant by merging its food and nutrition business with International Flavors & Fragrances (IFF). DuPont will keep control of the newly-formed company, which is expected to record around $300 million less in costs due to cost synergies. 

On this, Ed Breen, DuPont’s executive chairman, said:

We conducted a very thorough process leading us to the selection of IFF as the preferred strategic partner. I am confident that [the nutrition unit] will be well-positioned for its next phase of growth

2020 outlook

Due to recent mergers and spinoffs, many analysts are led to believe that DuPont has finally slimmed down its business and is ready to get back on the road of growth. The business is now consolidated in addition to an enhanced focus in each business.

Melius Research analyst Scott Davis believes DuPont stock is currently undervalued.

From our vantage point… this stock is too cheap

Similar to Melius Research, Bernstein analyst Jonas Oxgaard has an akin opinion. 

DuPont shares are undervalued after the deal

Thanks to the latest merger with IFF, DuPont is now equipped with enough cash to repay debt and focus its investment program on its core businesses, such as construction, electronics and transportation. 

Technical analysis: Where to buy?

In December 2019, shares of DuPont created a fresh 46-month low of $61.63, which reflects the poor situation that has been surrounding the company in recent years. As seen in the chart below, the price action trades in the continuous downtrend as sellers remain firmly in control.

DuPont monthly chart (TradingView)

While the technical picture looks quite depressing, the upside for DuPont is that there is a great amount of room to make gains. The most interesting level for buyers to get in the market is definitely $60.40, where the 200 Monthly Moving Average – extremely important technical indicator – sits. 

The price action tends to react to important Moving Averages on higher time frames, such as weekly or monthly. Hence, we can consider this level a good entry point. If DuPont starts to recover in the coming weeks and months as the chart suggests, you should consider buying DuPont stock. In this context, the immediate resistance is $70 while the $81 level is a mid-term target for buyers. 

Summary

DuPont has had a rough few years. A few months ago, the stock hit a 46-month low. However, the most recent decision taken by the leadership provides investors hope that DuPont is about to turn the corner. The latest merger with IFF should place a greater focus on core businesses, which provided a lifeline to DuPont in the previous decades. 

As a result of recent decisions, many analysts are led to believe that DuPont is an undervalued stock with plenty of room to grow. 

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