DuPont’s Growth of Ag Business, Danisco Acquisition Support $59 Estimate
Source: DuPont
DuPont (NYSE:DD) third quarter earnings reaffirmed the importance of company’s agriculture and nutrition based products division, which contributes nearly 32% to the stock as per our estimates. In the third quarter this division witnessed strong revenue growth, supported by both organic growth through new products introductions as well as acquisitions. The divisional margins are expected to improve from next year as DuPont starts to derive cost synergies from Danisco, acquired earlier this year. Also DuPont’s focus upon new products as well as growth investments will continue to support the division’s revenue growth, providing further upside potential to the stock in the medium-term. In the agriculture market DuPont competes with other giants such as Syngenta AG (NYSE:SYT), Monsanto (NYSE:MON) and Dow AgroSciences (NYSE:DOW).
Our current price estimate for DuPont stands at $59, which is more than 25% above its current market price.
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Danisco acquisition to improve margins in medium-term
By the end of third quarter, DuPont acquired all the outstanding shares of Danisco, a global enzyme and specialty food ingredients company, for around $6.4 billion. Even though DuPont will continue to incur transaction related costs this year, the company initiated a series of actions to achieve the expected cost synergies associated with the Danisco acquisition. This will help increase the margins at DuPont’s Agriculture and Nutrition based Products division.
But the margins growth will be partially offset by raw material cost increases and DuPont’s planned growth investments.
Agriculture and nutrition based products will grow in near term
We expect that revenues from agriculture and nutrition based products will grow by around 40% in 2011 because of organic growth from several new product introductions as well as inorganic growth from Danisco acquisition.
Moreover, we believe that DuPont’s continued focus to leverage new research facilities for product innovation, global expansion, and supply chain management to ensure full product availability will help the company continue expanding its market share in agriculture and nutrition based products over the medium-term. ((DuPont Announces New Seed Research Facility in Iowa))
You can drag the trend lines in the modifiable charts above to see the impact of these trends on DuPont’s stock value.
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