DuPont: We See No Change to Valuation Based on Reverse Split Stock Plan

Key Morningstar Metrics for DuPont de Nemours

• Fair Value Estimate
  : $50.00
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : High

DuPont de Nemours DD announced its plan for a reverse split of the company’s common stock between 1-for-2 and 1-for-4 shares. Management will put up the proposal for a shareholder vote at its upcoming annual meeting in May and then allow the board of directors to finalize the plan.

Why it matters: A stock split would impact DuPont’s share price but not its market capitalization, as a higher post-split share price would be directly offset by a lower share count. We see the split having no change to our valuation, which is informed by our free cash flow forecast.

The bottom line: For now, we maintain our $50 per share fair value estimate for narrow-moat DuPont. If the split goes into effect, our fair value estimate would change by the split amount. A 1-for-2 split would result in a $100 per share fair value estimate, while a 1-for-4 split would result in a $200 estimate.

• At current prices, we view DuPont shares as fairly valued, trading nearly 15% below our fair value estimate but in 3-star territory. Accordingly, we recommend investors wait for shares to offer a larger margin of safety before considering an entry point.

Coming up: DuPont shares are down nearly 20% from their 52-week high, with most of the decline coming since the beginning of the US-Iran conflict. We think the market is concerned that commodity chemical inflation and disrupted shipping will weigh on near-term results.

• DuPont should be able to pass along any commodity chemical-related cost inflation, as it did during the pandemic-related inflationary period several years ago. DuPont locally manufacturers most of its products, so we see less impact from a shipping disruption.
• DuPont’s industrial segment may see lower volumes from a potential slowdown, but we see less impact to its healthcare and water solutions segments, where we see long-term growth.