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Stock Strategist

Market Too Focused on Corteva's Near Term

We see long-term potential for this wide-moat seed and chemical producer.

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Since seed and crop chemical company Corteva (CTVA) was spun out of DowDuPont in June, we think the market has focused on near-term uncertainties like the effects of flooded U.S. fields and the dry start to the Brazilian planting season. However, we continue to expect a full rebound in U.S. agricultural input demand in 2020. Because the planting season has just begun in Brazil, we think it is too early to determine any impact on crop plantings this season. If plantings pick up in October, the effect could be that sales simply shift from Corteva’s third quarter to the fourth, similar to the delayed U.S. plantings in 2018. Regardless, we remain optimistic on Corteva’s long-term outlook and view the shares as undervalued.

Corteva is a leader in the development of new seeds and crop chemicals. Its product portfolio skews toward seeds, which generated 56% of revenue in 2018. The company develops its pipeline by investing nearly 11% of sales in research and development, which outpaces all competitors. This should allow Corteva’s sales and profits to continue to grow even as patents expire and generic products come to market.

Seth Goldstein does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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