Contaminant Litigation Risks May Affect DuPont Valuation, Analyst Downgrades Stock

Bank of America Securities analyst Steve Byrne downgraded the stock of DuPont de Nemours Inc DD from Buy to Underperform and raised the price target from $78 to $80.

The analyst says the downgrade is based on relative valuation, modest earnings recovery in 2024, and under-appreciated Per- and Polyfluorinated Substances (PFAS) liabilities.

The analyst raised the full-year 2024 EPS estimate from $3.76 to $3.85 reflecting more recovery in Water & Protection from an improvement in U.S. housing starts, combined with modest gains in Electronics & Industrial.

The analyst views the $1.2 billion AFFF MDL settlement that DuPont/Chemours negotiated last June as quite favorable, which was reinforced by 95% of the 14,000 U.S. public water suppliers to opt in. 

The fund constitutes a small fraction of the $50 billion of capital costs estimated by Black & Veatch to comply with EPA's proposed PFAS maximum contaminant levels, writes the analyst.

The broadly held view that DuPont's PFAS liabilities have been addressed ignores the potential for significant personal injury litigation based on the analysts' due diligence in crop chemical litigation.

PFOA was reassessed as carcinogenic and has been detected in more than 99% of 1000 randomly selected U.S. blood samples every year from 1999-2018.

While Chemours holds the primary liability for legacy DuPont PFAS contamination, the analyst sees risk to DD's shares from PFAS news flow.

The new price target is based on an unchanged 13x EV/EBITDA multiple of the analyst's 2024 EBITDA estimate.

Price Action: DD shares are trading lower by 2.56% at $73.60 on the last check Tuesday.

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