Why Citi Upgraded Ailing DuPont

• DuPont is on track to achieve its massive $1 billion cost-cutting target by the end of the year.
• The company could unlock trapped value by splitting its materials and agriculture businesses.
• Citi believes that DuPont currently offers an attractive entry point for buyers and upgrades the stock to Buy.

Shares of E.I. du Pont de Nemours and Co DD have fallen more than 30 percent so far in 2015, but a new report by P.J. Juvekar explains why things could soon be looking up for DuPont shareholders. In the report, Citi upgrades the stock to Buy and discusses major potential catalysts for a rebound.

Cost-Cutting

Juvekar sees DuPont on track to complete the $1 billion cost-cutting target that the company set as part of its Fresh Start Program by the end of 2015. In addition, total cost cutting could reach $1.3 billion by 2017, but Juvekar sees potential for additional measures as well. According to Citi’s calculations, each $1 billion spending reduction results in an extra $0.85 in earnings per share for the company.

Splitting Ag And Materials Businesses

According to Juvekar, DuPont could take a big step toward unlocking trapped value by splitting its agriculture and materials businesses into separate entities. Not only would this simplify the portfolio of DuPont’s materials business, Citi believes that DuPont and The Dow Chemical Co DOW could combine their respective agriculture businesses to form a “formidable competitor.”

“Dow has a track record of developing new traits, while DD’s high market share in seeds creates a natural distribution channel,” Juvekar explains.

Outlook

For now, Juvekar sees DuPont’s shares as attractively-valued and points out that the stock should see support from $4 billion of share repurchases by the end of 2016. Citi upgrades DuPont from Neutral to Buy and raises its price target for the stock from $58 to $63.

Disclosure: the author holds no position in the stocks mentioned.