Corteva Earnings: Price Increases and Shift to Premium Products Drive Profit Growth

We maintain our $70 per share fair value estimate for Corteva CTVA after updating our model to incorporate the company’s strong first-quarter results. Our wide moat rating is also unchanged. At current prices, we view Corteva shares as slightly undervalued with the stock trading about 15% lower than our fair value estimate and in 4-star territory.

Corteva’s quarter exemplified our long-term thesis. Operating EBITDA grew 18% versus the prior-year quarter. Despite unfavorable weather in Latin America and Asia-Pacific, which led to seed and crop protection volumes, Corteva’s pricing power and new product launches drove higher prices, which more than offset volume declines and cost inflation.

The increased proportion of premium products should drive more steady profit growth even when bad weather conditions lead to lower sales volumes in a region. We expect much of the volume declines will be made up in the second quarter, as plantings were delayed, particularly in Asia.

During the quarter, Corteva also closed its acquisition of Stoller, the biologicals producer. This should boost the company’s already market-leading biologicals portfolio. Biologicals, which are premium-priced crop protection products, use natural materials, such as microbes or bacteria, to kill insects and weeds. These products have been taking market share from synthetic chemical-based crop protection products. We forecast the biologicals market will grow to over 25% of global crop protection sales by 2035. As Corteva aims to shift its crop protection portfolio toward biologicals, its crop protection segment should see mid-single-digit revenue growth and operating EBITDA margin expansion over the next several years.