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Will DuPont Outgrow Monsanto and Syngenta in 2014?

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DuPont (NYSE: DD  ) has soared in 2013, with its gains of more than 35% year to date well outpacing the Dow Jones Industrials'  (DJINDICES: ^DJI  )  21% advance. As the company known historically for its chemical prowess evolves toward more of an agricultural focus, though, it will face the question of whether it can grow faster than Monsanto (NYSE: MON  ) and Syngenta (NYSE: SYT  ) and establish itself as the premier developer of seeds, fertilizer, and other high-margin agricultural products in the industry.

The changing nature of the chemical industry has created a big rift among its various subsectors. On one hand, traditional businesses like titanium dioxide pigment production and other performance chemicals have become commodity-like in their returns, no longer offering the high profit margins that investors prefer. At the other end of the spectrum, the high demand for yield-enhancing crop products, including both seeds with desirable traits engineered into them and fertilizers and pesticides designed to keep crops healthy under challenging conditions, has pushed DuPont further in the direction of Monsanto and Syngenta. Let's take a closer look at DuPont's prospects for 2014.

Stats on DuPont

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Full-year 2014 EPS estimate


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Full-year 2014 sales growth estimate


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Source: Yahoo Finance.

How far can DuPont grow from here?
DuPont stock faces the same challenge as hundreds of other companies after the long bull-market rally, as even solid gains in its fundamentals appear to be almost fully priced into the share price. Based on analysts' current estimates, DuPont has only 5%-6% upside from current price levels, showing that Wall Street doesn't entirely trust the earnings and revenue growth projections that might otherwise justify a higher valuation.

The big question for 2014 is whether DuPont will manage to spin off its performance chemicals business during the year or whether it will take until 2015 to complete the deal. The move is so important because the unit's contributions to DuPont's overall earnings have been falling dramatically. In its most recent quarter, the unit saw revenue jump 12%, but operating earnings fell 38% as titanium dioxide prices dropped. In October, DuPont said that a spinoff could take up to 18 months, but pressure on the company to get a deal done sooner might provide enough inspiration to make it happen before 2014 ends.

DuPont hopes to use the same general strategy in 2014 that Monsanto did in the past to achieve its high-margin focus. Monsanto used to offer a broader array of chemicals, but nearly all of its revenue now comes from seeds, pesticides, herbicides, and other ag products. A deal between DuPont's Pioneer Seed and Deere (NYSE: DE  ) to combine Deere's farm-equipment prowess with DuPont seeds will provide farm customers with one-stop assistance in making best use of both companies' products. That could give DuPont a key competitive advantage over Syngenta and Monsanto.

Of course, DuPont will face plenty of challenges. Monsanto recently bought The Climate Corporation, giving it a leadership position in helping farmers evaluate climate conditions to make better choices about which traits to target, as well as ongoing decisions like optimal planting times and crop choices in light of likely weather patterns. Meanwhile, the ongoing controversy over genetically modified organisms will inevitably continue, with Syngenta, Monsanto, and DuPont all likely joining forces to reassure consumers that GMOs aren't a cause for concern on food quality and health issues.

Investors should also remember that DuPont hasn't given up on other promising areas for potentially lucrative products. For instance, as the solar industry gets a new leg up from the popularity of residential installations, DuPont's expertise in developing solar-cell innovations could become more valuable. Bendable and stretchable products could also find use in other applications such as lighting, allowing DuPont to keep its reputation for innovation.

Despite still offering expertise in other areas, DuPont's performance in 2014 will likely depend on its continuing evolution toward becoming increasingly focused on the agricultural industry. As long as farm-commodity prices remain high enough to allow farmers to buy yield-enhancing products affordably, DuPont should keep cashing in on its transformation in 2014 and beyond.

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Read/Post Comments (5) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 17, 2013, at 2:33 PM, funfundvierzig wrote:

    How can the bumbling bosses of DuPont and their inept "scientists" who created and marketed the largest, mostly costly new product failure and ensuing environmental disaster in 21st century corporate America, namely the multi-$billion DuPont Imprelis tree-killing fiasco, possibly "establish itself as the premier developer of seeds…and other high margin agricultural products in the industry"? The critical requisite mass of scientific and bio-engineering talent simply does not seem to exist within the DuPont organization of 2013.

    The innovation gap between singularly and intensely focussed front-runner Monsanto and the DuPont Pioneer conglomerate bureaucracy, if anything, is widening discernibly.

    Merely the opinion of one individual investor, long MON, SYT, and long and short DD…funfun..

  • Report this Comment On December 17, 2013, at 2:46 PM, funfundvierzig wrote:

    Sans chemicals, DuPont's earnings will drop even more dramatically. Based upon full year 2012 data, DuPont will lose 20% of its revenues and nearly a third of its earnings, 29% to be exact.

    Moreover, unable to sell its troubled chemicals unit with a huge legacy of litigation claims, environmental risks, and unfunded pensions, DuPont will not have fresh cash, sales proceeds, to re-invest into its touted DuPont AG & NUT "growth" businesses. A spin-off, rather than a sale, will not bring in perhaps as much as $8 to $10 billion the chemicals unit might be worth. Lack of cash will limit the capacity of the much shrunken DuPont to invest in agricultural research and to make major strategic acquisitions.

    We do not see a catch-up, much less a surpassing of world leaders, Monsanto in seeds and Syngenta in crop protection chemicals, by the now seriously lagging DuPont…funfun..

  • Report this Comment On December 17, 2013, at 5:57 PM, eyeknonothing wrote:

    " At the other end of the spectrum, the high demand for yield-enhancing crop products, including both seeds with desirable traits engineered into them and fertilizers and pesticides designed to keep crops healthy under challenging conditions, has pushed DuPont further in the direction of Monsanto and Syngenta". This statement is a flat out lie. Keep crops healthy with the ability to drink Round Up and live, is that what you call healthy?

  • Report this Comment On December 17, 2013, at 8:44 PM, nomofunfun wrote:

    In yet another victory for the so-called little known lawyers from little know schools, DuPont was held NOT liable for lead paint, while someone's favorite SHW got a billion dollar whammy.

    Looking for to the replies from the Aberdeen man on Yahoo, who's been very silent on Yahoo today for no apparent reason.

    DuPont, the superior-managed corporation.

  • Report this Comment On May 09, 2014, at 8:53 PM, Hansen wrote:

    DuPont announced lower than expected financial results for first quarter FY14 largely because severe

    weather conditions depressed revenues from the DuPont’s all important agricultural business

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9/30/2016 5:01 PM
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