DuPont and Corteva: PFAS Settlement Doesn’t Change Our View of Combined $2 Billion Exposure

DuPont, Corteva CTVA, and Chemours (which we collectively refer to as “Historical DuPont”) announced a settlement to resolve the vast majority of current perfluoroalkyl and polyfluoroalkyl substances, or PFAS,-related drinking water claims for U.S. water systems where the so-called forever chemicals have either been detected or are subject to monitoring. The settlement totals $1.185 billion, of which DuPont and Corteva will have to pay $400 million and $193 million, respectively.

The agreement is consistent with our view that DuPont and Corteva will eventually have $2 billion in PFAS exposure (split $1.4 billion for DuPont and $600 million for Corteva), which is the upper end of their liability sharing agreement with Chemours. With our outlook intact, we maintain our $92 per share fair value estimate and narrow moat rating for DuPont. We also maintain our $70 per share fair value estimate and wide moat rating for Corteva.

The market reacted favorably to the settlement news. DuPont shares were up 6% at the time of writing, while Corteva’s were up 3%. At current prices, we view DuPont and Corteva shares as undervalued, with both stocks trading in 4-star territory. While we include the maximum PFAS-related liability under the agreement with Chemours for both DuPont and Corteva in our valuations, we think the favorable stock reactions suggest the PFAS liability risk had weighed on market sentiment.

As a result, we point to recovering demand for DuPont’s electronics and housing-related businesses as a driver to send shares closer to our $92 per share fair value estimate. Likewise, an increased proportion of premium seeds and crop protection products should lead to profit growth and margin expansion for Corteva.