Solid fundamentals, diverse business lines, and good dividends sum up DuPont (NYSE: DD), the world's largest titanium dioxide (TiO2) producer. With the TiO2 market expected to remain robust this year, there are good reasons to remain bullish on DuPont.
Here's my take on the factors that should keep you hooked on the stock.
Rising with TiO2
Robust TiO2 market is one of the big reasons to be upbeat about DuPont. Revenue grew 19.6% during the past 12 months, thanks in large part to TiO2 prices. TiO2 demand has outdone supply in recent times, enabling pigment producers to command higher prices. Throughout last year, we saw a flurry of price increases from all major players, including DuPont, Kronos Worldwide (NYSE: KRO) and Huntsman (NYSE: HUN). Not surprisingly, top-line growth was solid throughout the year.
Although the last quarter was a dampener, with sales volumes falling across board as customers destocked on global concerns, I don't think it is a major worry. DuPont expects the market to improve by midyear and to remain strong overall. Moreover, it is unlikely that TiO2 supply in the market will shoot up in the near term, as any capacity addition takes significant time. Kronos, too, believes the shortage of TiO2 will persist for some more years.
Being the world's largest TiO2 producer, DuPont stands to gain the most as demand for TiO2 pumps up. Moreover, all three -- Kronos, DuPont, and Huntsman -- are still increasing prices and are likely to do so throughout the year. Naturally, rising demand and higher prices will mean a heavier top line for DuPont.
All-round growth
DuPont is making sure it stays ahead in the chemical race by doing what most aren't -- expanding TiO2 capacity. Among other things, it is setting up a new facility in Mexico and expanding five existing plants at various sites.
What also impresses me is that DuPont's other businesses are growing well, too. The share of agriculture and nutrition-and-health segments in DuPont's top line has moved up significantly since it acquired food company Danisco. DuPont has more than 150 new seed and corn product launches lined up for this year. Expanding in a sector that has not flailed in difficult economic times is great move by DuPont.
The company is betting big on solar energy as well, targeting 40% higher sales from the photovoltaic market this year. Last month, it joined hands with solar company Yingli Green Energy (NYSE: YGE) to supply photovoltaic material, in a deal that should help DuPont gain traction in the growing Chinese market. The move underscores DuPont's focus on developing markets, which account for nearly a third of the company's sales today.
Strong financials
DuPont's expansionary investments, particularly the Danisco acquisition, have resulted in a high debt-to-equity ratio of 138.5%. But DuPont has ample cash and operating income to support its debt obligations. Total cash and equivalents stand at $3.6 billion, while unlevered free cash flow was at $2.2 billion as of Dec. 30. Add an interest coverage ratio of 11, and one can comfortably call DuPont a financially solid company.
The Foolish bottom line
The last and one of the more tempting reasons to keep DuPont on your radar is dividends -- it yields a handsome 3.1%.
DuPont is a great package, and I strongly recommend you keep tracking all the news, updates, and analysis on the stock by adding it to our free watchlist service, My Watchlist. My Watchlist.
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