DuPont's Strategic Split Could Unlock Value, But PFAS Risks Loom Large, Says BofA Analyst

BofA Securities analyst Steve Byrne raised the price target for DuPont de Nemours, Inc. DD from $74 to $80 while reiterating the Underperform rating.

The analyst writes that they believe there is logic behind DuPont’s decision to split into three companies and capture higher valuations for the Water and Electronics businesses.

The analyst says that DuPont’s position in electronics and its high R&D spend could benefit a spin-co EBITDA multiple.

Byrne says that investor interest in DuPont has tended to be modest, which has been due to the uncertain magnitude of Perfluoroalkyl and polyfluoroalkyl substances (PFAS) liabilities and the diversity of businesses constraining valuation to well below specialty chemical peers. 

Hence, if a deal were to happen on the announced terms, the split would create pure-plays in two end markets with significant long-term growth potential, driven by water shortages and societal electrification, says the analyst.

However, the analyst expects PFAS liabilities to pose a greater risk to the smaller/less diversified new companies. 

Byrne adds that further consolidation could be years away as all three entities will bear PFAS liabilities, and the nature of the split means M&A restrictions could last for two years post-spin. 

The analyst estimates EPS of $3.65 (vs. $3.62 cons.) for FY24, $4.10 (vs. cons: $4.24) for FY25, and $4.39 (vs. $4.84 street view) for FY26.

Investors can gain exposure to the stock via ProShares Smart Materials ETF TINT and Invesco S&P 500 Equal Weight Materials ETF RSPM.

Price Action: DD shares are up 1.15% at $82.05 at the last check Tuesday.

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