DuPont de Nemours, Inc. (DD - Free Report) is benefiting from its cost and productivity actions, investment in innovation and new product development amid certain headwinds including a weak demand environment.
The company’s shares are down 17.8% year to date, compared with a 15.2% decline recorded by its industry.
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Favoring the Stock?
DuPont is gaining from cost synergy savings and productivity improvement actions. It now sees roughly $180 million of savings in 2020 from its earlier announced incremental cost actions, up from its prior expectation of $90 million. The company’s cost and productivity initiatives are expected to drive margin expansion.
The company also remains focused on driving growth though innovation and new product development. New product launches are driving growth in automotive electrification and water solutions. The company’s innovation-driven investment is focused on several high-growth areas. It remains committed to drive returns from its R&D investment. The company plans to invest roughly $900 million in R&D in 2020.
Moreover, DuPont remains focused on driving cash flow and shareholder value. It looks to boost cash flow through working capital productivity and earnings growth. The company is taking actions to deliver more than $500 million of working capital improvement in 2020. It is also deferring certain capital expenditures to boost free cash flow. DuPont also expects to return roughly $900 million in dividends and $230 million in share repurchases this year.
During the first quarter, the company also strengthened its liquidity position with a $1 billion revolving credit facility. The company ended the first quarter with a strong cash position of $1,748 million. With these and $1.3 billion in available commercial paper, the company has roughly $4 billion of total available liquidity.
A Few Headwinds
DuPont faces headwind from weak demand across some of its businesses. It is seeing softness across certain markets such as automotive, aerospace, industrial and oil & gas as witnessed in the first quarter. Weakness in the automotive market (reflected by declining global automotive builds) is hurting volumes in the company’s Transportation & Industrial unit. The company is also seeing lower demand in industrial and aerospace & defense markets due to the coronavirus outbreak. Oil and gas industry dynamics also remain challenging. Demand weakness across these end-markets may affect the company's sales in the second quarter.
The company is also facing pressure from lower nylon prices. Lower demand is contributing to weak pricing. Nylon pricing weakness is expected to hurt second-quarter sales. DuPont expects prices to be down mid-single digits year over year in the Transportation & Industrial division in the second quarter due to nylon headwinds.
The company also faces earnings headwind from costs associated with idling of plants. DuPont is idling certain facilities, primarily in the Transportation & Industrial segment, to align its supply with market demand. Charges associated with plant idling are expected to hurt margins in the second quarter.
Stocks to Consider
Better-ranked stocks worth considering in the basic materials space are Agnico Eagle Mines Limited (AEM - Free Report) , Alamos Gold Inc. (AGI - Free Report) and Franco-Nevada Corporation (FNV - Free Report) .
Agnico Eagle has a projected earnings growth rate of 53.6% for the current year. The company’s shares have gained roughly 21% in a year. It currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Alamos Gold has a projected earnings growth rate of 65% for the current year. The company’s shares have shot up around 35% in a year. It currently has a Zacks Rank #2 (Buy).
Franco-Nevada has a projected earnings growth rate of 19.2% for the current year. The company’s shares have surged around 61% in a year. It currently has a Zacks Rank #2.
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