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DuPont Price Target Cut At Morgan Stanley; Stock Up 10%

DuPont Price Target Cut At Morgan Stanley; Stock Up 10%
  • Shares of E I Du Pont De Nemours And Co (NYSE: DD) spiked higher by 10 percent on Tuesday.
  • DuPont announced on Monday its CEO Ellen Kullman will retire, cut its fiscal 2015 operating earnings per share guidance to around $2.75 from a previous $3.10.
  • Vincent Andrews of Morgan Stanley maintained an Equal-weight rating on DuPont with a price target lowered to $50 from a previous $57.

DuPont communicated several key developments with investors on Monday.

DuPont stated that its CEO and Chairman Ellen Kullman will retire and replaced with Edward Breen on an interim basis. The company also lowered its fiscal 2015 operating earnings per share from $3.10 to approximately $2.75. Commenting on the revised outlook, the company noted "continued strengthening of the U.S. dollar versus currencies in emerging markets, particularly the Brazilian Real; and a further weakening of agricultural markets, primarily in Brazil."

Vincent Andrews of Morgan Stanley stated in a note that on the one hand, a change in senior management can lead to, 1) corporate break-up/M&A activity in agriculture, 2) more aggressive restructuring that what was already announced, 3) potential board appointment of shareholder and activist investor Nelson Peltz.

On the other hand, Andrews suggested that capital markets have already contemplated these scenarios over the prior 18 months.

Andrews noted that "it will be hard for the market not to read something" into Ed Breen being named as interim CEO and Chairman as there was no commentary on the conference call. In addition, Breen successfully optimized Tyco's corporate structure through various asset separations – an issue that the board will now reconvene over.

Bottom line, Andrews argued that there are "many outcomes" that are possible at this point and it is difficult to assign probabilities.

Shares remain Equal-weight rated with a price target lowered to $50 from a previous $57 to reflect lower 2015 earnings.

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