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DuPont Split Gives Investors Better Choices

A more focused DuPont should offer strong free cash flow and a growing dividend.

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DuPont de Nemours Inc

DuPont DD announced its plan to separate into three companies. DuPont will spin off its electronics and water businesses into separate firms while the remaining businesses will remain part of DuPont. The separation will likely occur similarly to when DowDuPont broke up into three companies. Existing DuPont shareholders will likely end up with shares in all three new companies. We expect the separation to occur by mid-2026.

Key Morningstar Metrics for DuPont

Separately, the company also announced a management transition. Current CEO and executive chair Ed Breen will relinquish his CEO role and move solely to the executive chair role. Current CFO Lori Koch will become DuPont’s CEO. Given that DuPont plans to separate into three companies, we expect that will be management’s focus until the transactions are complete.

We see little impact on our forecast, outside of corporate dis-synergies. This is attributable to the overhead cost of running three corporations rather than one. Our current DuPont forecast already assumes higher revenue growth in the electronics and water businesses, as we see faster end-market growth. After reviewing both announcements, we’re maintaining our $90 fair value estimate. Our narrow Morningstar Economic Moat Rating and Standard Capital Allocation Rating are also unchanged.

DuPont was up slightly at the time of writing. At current prices, we view the stock as undervalued, with shares trading in 4-star territory.

While we left our fair value unchanged on the news, in our view, the move to create two pure-play companies and a more focused DuPont gives investors better choices. For investors who want specific exposure to a higher-growth end market such as semiconductors and interconnected devices, or water filtration, there will be two market-leading pure-play options in the two spin-offs. For investors who still prefer diversified industrial exposure, the remaining DuPont should offer strong free cash flow generation and a growing dividend.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Seth Goldstein, CFA

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Seth Goldstein, CFA, is an equities strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers agriculture, chemicals, and lithium companies in the basic materials sector and is also the chair of Morningstar's electric vehicle committee.

Prior to assuming the equity analyst role in 2017, Goldstein was an associate equity analyst covering the basic-materials sector. Before joining Morningstar, Goldstein was a senior financial analyst for Oasis Financial, a financial analyst for Berkshire Hathaway Energy, and a field operations supervisor for the U.S. Census Bureau.

Goldstein holds a bachelor's degree in journalism from Ohio University and a Master of Business Administration, with a concentration in finance, from the University of Iowa. He also holds the Chartered Financial Analyst® designation.

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