Why DuPont Will Ride The Agriculture Consolidation Wave

• Deutsche Bank remains bullish on E I Du Pont De Nemours And Co DD following Q3 earnings.
• The firm believes that a new CEO and a wave of consolidation in the agriculture business will be positive catalysts for DuPont.
• Deutsche Bank’s SOTP analysis yields a $70 price target.

In a new report, Deutsche Bank analyst David Begleiter explains why DuPont is a buy following its Q3 earnings report. Despite the fact the DuPont’s earnings remain under pressure, Begleiter sees major positive catalysts on the horizon.

New CEO
Deutsche Bank believes that interim CEO Ed Breen could be named permanent CEO in the near future, a decision that Begleiter sees as a positive for the stock. Deutsche Bank feels that there is unrealized value that is trapped within DuPont’s current corporate structure, and the firm believes Breen could be the perfect man to unlock that value.

“Given Mr. Breen’s track record of breaking up Tyco – twice, we believe this would augur well for a break-up of DuPont in to a Ag/Nutrition/Biosciences company (‘15E EBITDA: $3.0B) and a Chemical/Mat’ls company (‘15E EBITDA: $2.8B) with Corporate/Other EBITDA of $885MM divided equally,” Begleiter explains.

Consolidation
In addition to the positive impact of a new CEO, Deutsche Bank sees a wave of consolidation coming in the agriculture industry. Low growth and low commodity prices have the landscape ripe for buyouts, and Begleiter believes that DuPont is poised to be a major player. In fact, Breen even explicitly stayed in the earnings call that the company is actively engaged in consolidation talks.

Value play
Finally, Deutsche Bank’s sum-of-the-parts analysis of DuPont yields a $70 value for the stock, a 13 percent upside from recent trading levels. In addition to the $70 price target, the firm maintains its Buy rating on DuPont’s stock.

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