On Thursday, JPMorgan (NYSE:JPM) updated its outlook on DuPont (NYSE:DD), increasing the price target to $90 from $88, while maintaining an Overweight rating on the shares. The firm acknowledged DuPont's second-quarter earnings, highlighting a beat and raise scenario driven by a broad-based electronics recovery and sequential improvement across all Water & Protection (W&P) lines of business.
DuPont's performance was notably bolstered by a stronger-than-expected uptick in its China water business. The company also experienced a $30 million pre-buy during the quarter in its Electronics & Imaging (E&I) sector. This was attributed to customers ramping up purchases to support new fabrication capacity primarily in China, alongside restocking by global fabrication plants and an early arrival of orders in certain consumer electronics markets.
The updated guidance from DuPont suggests an 8% sequential EBITDA growth in the second half of the year compared to the first half, or 11% excluding corporate costs. This outlook surpasses the typical seasonal growth of 1%, which JPMorgan views as reasonable, considering the pre-buy activities and the cyclical uptick. DuPont has reiterated its expectation for approximately 25% growth in E&I, with semiconductor growth showing a dichotomy—legacy nodes recovering more slowly and advanced nodes more quickly than anticipated. This dynamic is favorable for DuPont, given its strengths in the sector.
Further positive developments for DuPont include progress in the PFAS litigation, with a judge setting a timeline for determining the class size for bellwether trials. DuPont also mentioned in its 10-Q filing that the current figure of 6,000 plaintiffs could potentially be reduced by half.
JPMorgan's outlook considers DuPont's acceleration across various short-cycle businesses, which is attributed to more than just favorable year-over-year comparisons. The firm's exposure to electronics, where semiconductor growth exceeds 20%, is seen as a defensible trend that bodes well for growth into the next year, where first-half comparisons are expected to remain favorable. With the earnings revision cycle turning positive and a more evident synchronized growth setup, JPMorgan anticipates a higher sum-of-the-parts (SOTP) valuation for DuPont as the market awaits the company's upcoming split.
In other recent news, DuPont has reported a 17% increase in operating EBITDA for the second quarter of 2024, surpassing its previous guidance. The company attributes this growth to advancements in technology applications, including AI, and a resurgence in the consumer electronics market. DuPont has also announced the acquisition of Donatelle, a move aimed at strengthening its position in the medical device sector.
InvestingPro Insights
As DuPont (NYSE:DD) continues to navigate a dynamic market environment, real-time data from InvestingPro offers additional insights. With a market capitalization of $34.18 billion, DuPont is trading at a high earnings multiple with a P/E ratio of 53.23, reflecting investor confidence in the company's growth prospects. Despite recent revenue contraction of 3.79% over the last twelve months as of Q2 2024, the company's gross profit margin remains robust at 35.84%, underscoring its operational efficiency.
InvestingPro Tips indicate that DuPont's management has been actively supporting shareholder value through aggressive share buybacks and maintaining dividend payments for 54 consecutive years. This is complemented by a high shareholder yield and a dividend growth of 5.56% over the same period, signaling a commitment to returning value to investors. Moreover, with liquid assets exceeding short-term obligations, DuPont displays a strong liquidity position that can provide further financial flexibility.
For readers interested in deeper analysis, additional InvestingPro Tips related to DuPont's financial health and market performance are available, offering a comprehensive view of the company's investment potential.
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