Why DuPont Will Ride The Agriculture Consolidation Wave

In a new report, Deutsche Bank analyst David Begleiter explained why DuPont is a buy following its Q3 earnings report. Despite the fact the DuPont’s earnings remain under pressure, Begleiter sees major positive catalysts on the horizon.

New CEO

Deutsche Bank believes that interim CEO Ed Breen could be named permanent CEO in the near future, a decision that Begleiter sees as a positive for the stock. Deutsche Bank feels that there is unrealized value trapped within DuPont’s current corporate structure, and the firm believes Breen could be the perfect man to unlock that value.

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“Given Mr. Breen’s track record of breaking up Tyco – twice, we believe this would augur well for a break-up of DuPont in to a Ag/Nutrition/Biosciences company (‘15E EBITDA: $3.0 billion) and a Chemical/Mat’ls company (‘15E EBITDA: $2.8 billion) with Corporate/Other EBITDA of $885 multi-million divided equally,” Begleiter explained.

Consolidation

In addition to the positive impact of a new CEO, Deutsche Bank sees a wave of consolidation coming in the agriculture industry. Low growth and low commodity prices have the landscape ripe for buyouts, and Begleiter believes that DuPont is poised to be a major player. In fact, Breen even explicitly stayed in the earnings call that the company is actively engaged in consolidation talks.

Value Play

Finally, Deutsche Bank’s sum-of-the-parts analysis of DuPont yields a $70 value for the stock, a 13 percent upside from recent trading levels. In addition to the $70 price target, the firm maintains its Buy rating on DuPont’s stock.

Disclosure: The author holds no position in the stocks mentioned.

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