What happened
Stocks in boring sectors like chemicals don't often surge double digits within days, but DuPont de Nemours (DD 0.22%) proved an exception this week, soaring -- and pulling shares of Rogers (ROG -0.13%) along with it -- thanks to a massive deal. According to data from S&P Global Market Intelligence, DuPont shares closed Friday up 15.6% for the week, while Rogers gained 34% this week.
So what
On Nov. 2, both DuPont and Rogers announced quarterly numbers alongside an agreement that took many by surprise: DuPont struck a deal to acquire Rogers for $5.2 billion, representing a 33% premium over Rogers' closing price on Nov. 1. With Rogers also reporting promising numbers the same day, investors cheered DuPont's offer and sent Rogers shares soaring.
Image source: Getty Images.
Investors in DuPont were equally excited. Although Rogers manufactures engineered materials for diverse markets including electronics, transportation, and wireless infrastructure, DuPont will essentially gain entry into electric vehicles (EVs), a market with exponential growth potential. 5G technology and clean energy are other huge markets Rogers serves. Just months ago, DuPont acquired Laird Performance Materials, another player in 5G telecommunications, smart vehicles, and artificial intelligence.
At the same time, DuPont announced plans to divest parts of its mobility and materials business, specifically engineering polymers and performance resins products lines.
These moves clearly reflect DuPont's efforts to diversify away from low-growth chemical businesses to high-value opportunities in sectors with steady long-term secular growth in a bid to boost its top-line growth and unlock greater value for shareholders.
Soon after the Rogers deal, multiple analysts rushed to upgrade their ratings and price targets on DuPont stock:
- Credit Suisse raised its price target to $95 a share from $76.
- Deutsche Bank upped its price target to $95.
- BMO Capital bumped up its price target to $101
- Mizuho increased its price target to $96.
- Vertical Research raised its price target to $95.
On Nov. 1, DuPont shares were trading around $70 a share, so it wasn't surprising to see the stock surge over the next few days. The company also reported strong numbers on Nov. 2: Its third-quarter sales surged 18% to $4.3 billion, and adjusted earnings per share soared 89% year over year, driven by strong volumes across all segments as well as a dip in the number of outstanding shares thanks to aggressive share repurchases during the quarter.
Now what
There's something DuPont investors might have missed amid the excitement: The company lowered its outlook for 2021 because of the ongoing semiconductor shortage that's hit demand from the automotive sector.
DuPont now projects sales to be between $16.34 billion and $16.4 billion and adjusted EPS of $4.18 to $4.22. It earlier expected net sales worth $16.45 billion to $16.55 billion and adjusted EPS of $4.24 to $4.30.
That said, DuPont's revised guidance also translates into roughly 14% growth in sales and a more than twofold jump in adjusted EPS. With the company now also targeting markets with massive growth potential like EVs, it looks like a stock you'd want to put on your radar right away.
