Why DuPont's Underperformance Could Be Good News For Investors

In a report published Friday, JP Morgan analyst Jeffrey J. Zekauskas upgraded the rating on

from Neutral to Overweight, while raising the price target from $58 to $60. DuPont's shares are down 24 percent year to date, versus a 1 percent rise in the S&P. In the last five years, the company's shares have underperformed the S&P averages by 54 percent, or 5400 basis points. During this period, DuPont benefited from "sharply positive cyclical fundamentals in agriculture, titanium dioxide, solar, and North American petrochemicals," analyst Jeffrey Zekauskas said, while adding that these cycles were now "all negative or flat." Zekauskas commented that the current stock price reflected "a positive risk/reward," despite the negative conditions. "High-quality agricultural companies have received high-teens EBITDA bids, which we read as a rough marker of intrinsic value," the JP Morgan report stated, while adding that DuPont's plans to repurchase shares worth $4bn over the next 18 months may offer "stability or strength to the share price." "Trian's initiative to seek a referendum on management performance was settled by a vote of confidence in management. Management now is in a position to demonstrate that the confidence of its shareholder base was well-placed. Given the longer-term underperformance of the shares, and a ready activist world, the market's appetite for positive change engineered by management is large and its time frame is not unlimited," Zekauskas explained. The EPS estimates for FY16 and FY17 have been reduced from $3.65 to $3.60 and from $4.20 to $4.00, respectively.