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On Jan 24, 2013, we upgraded our recommendation on chemical giant DuPont (DD - Analyst Report) to Neutral based on its better-than-expected fourth-quarter 2012 results and improved prospects.

Why the Upgrade?

DuPont, on Jan 22, posted adjusted earnings from continuing operations of 11 cents per share for the fourth quarter, beating the Zacks Consensus Estimate by a couple of cents. Net sales were essentially flat year over year at $7,325 million but exceeded the Zacks Consensus Estimate of $7,253 million.

Following the release of the forecast-topping fourth quarter results, the Zacks Consensus Estimate for 2013 rose 3.7% to $3.92 per share. Moreover, the Zacks Consensus Estimate for 2014 moved up by 3.8% to $4.35 per share.

DuPont, which carries a Zacks Rank #2 (Buy), is witnessing strength in its agriculture and food businesses. Despite unfavorable currency exchange swings, the Agriculture segment delivered healthy sales in the fourth quarter boosted by higher volume and strong performance of the crop protection business. The company expects continued strong growth in crop protection in 2013 to be driven by new products.

Moreover, DuPont should continue to benefit from the synergies of Danisco acquisition. The acquisition contributed to the growth across its Industrial Biosciences and Nutrition & Health divisions in the fourth quarter.

DuPont also has a healthy balance sheet and remains committed to boost shareholder returns. It will also continue to benefit from its aggressive restructuring actions.

That said, we also account for the weakness across titanium dioxide and photovoltaic markets. The company is also exposed to raw material cost inflation and currency headwinds.

Other Stocks to Consider

In addition to DuPont, other stocks in the chemical industry that are currently performing well include Arkema S.A. (ARKAY), BASF SE (BASFY) and Air Products (APD - Analyst Report). While both Arkema and BASF retain a Zacks Rank #1 (Strong Buy), Air Products holds a Zacks Rank #2 (Buy).

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