DuPont Feels Impact from Housing

We stick to our Hold view on DuPont Co. (DD - Analyst Report), which expects to generate $1.7 billion in productivity gains over the next three years by continuing its efforts to streamline its supply chains and business support operations. Given the rapid rise in global food production, DuPont is focusing on boosting farm productivity. Sales in the non-G7 countries are 37 percent of revenues and are growing at 17 percent per year.

Going forward, growth will be driven by non-G7 markets, agricultural chemicals, a focus on key customers, and new products. Strong presence in the agricultural products market, emerging markets, pricing actions, favorable currency and productivity is likely to outweigh increasing costs and weak auto and housing markets. However, slowing demand in the U.S. markets is likely to offset growth in agriculture and other markets outside the U.S.

The company’s products such as Corian and Tyvek, which are used in home building, have been hit by the slump in the U.S. housing market. Meanwhile, weak North American automotive and construction markets have hurt its coating business. The company estimated that the weak North American markets would cost DuPont about $0.20 of EPS in year-on-year headwind for 2008.

DuPont is currently valued at 13.6x our 2008 estimate of $3.52. We have a target of $49.50 on the stock, which is 14.1x our 2008 estimate.

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