Playing DuPont Ping-Pong

So, now DuPont (NYSE: DD) calls itself a "science company?" Given the ping-pong nature of its long-term strategy -- not to mention its fourth-quarter results -- maybe it should call itself a gaming company.

Ping: Net sales were up 14%. Earnings beat the average analyst estimate. Pong: Net income (before special items) was down 14%.

And talk about a work in progress. In 1999, DuPont spun off Conoco into what is today ConocoPhillips (NYSE: COP). In 2001, it sold its pharmaceutical business to Bristol-Myers Squibb (NYSE: BMY). Last year, the company announced a $4.4 billion sale of Investa.

Ping: We manage oil prices by owning oil. Chemicals and pharmaceuticals make for a nice combination. We are the world's largest integrated fiber and intermediates company. Pong: We're out of those businesses. We're a sciences company.

In 1999, DuPont gobbled up the 80% of Pioneer Hi-Bred, the world's largest seed company, that it did not already own.

Ping: Our 20% interest in Pioneer is a strategic investment to support our agricultural chemicals business. Pong: We're the world's largest seed company.

The net result? From 1997 through 2003, earnings per share declined from $3.61 to $1.66. According to Value Line, capital spending (a company's investment in its future) plunged from $4.22 to an estimated $1.60. And sales (yes, revenue!) declined from $39.91 to an estimated $27 per share.

Ping: We are a chemical company. Pong: We are a conglomerate -- with lower revenues and profits.

As for 2004, DuPont forecasts earnings (before special items -- aren't there always special items?) of $2 to $2.20 a share. At the high end, the stock trades at 20 times those earnings -- below the market average. Ping: The stock looks reasonable. Pong: Earnings roughly equal 2002 results.

To be sure, it takes a ton of capital to enter the chemical business. True, too, we need chemicals. Then again, competitors BASF (NYSE: BF), Bayer (NYSE: BAY), and Dow (NYSE: DOW) already boast better operating margins.

Ping: DuPont produces necessities. Pong: Management has yet to show that it can keep pace with its peers.

DuPont's stock price reflects the uncertainty of its markets -- and execution. Its attractive $1.40 dividend is to be commended, at least until you consider that earnings before special items were $1.66. That's a pretty high payout ratio.

It's a tough call, but you've got to go with Pong on this one: DuPont is cheap but no value.

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W.D. Crotty does not own stock in any of the companies mentioned.