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Details on DuPont’s earnings warning and our price target change on the stock
DuPont preannounced disappointing earnings results before the opening bell Wednesday, sending the stock down roughly 13%. We’re not going to buy that dip. Ahead of next month’s quarterly release, the materials giant said: Sales for the fourth quarter are expected to be about $2.9 billion, short of the $3 billion the Street was looking for, according to estimates compiled by LSEG. Adjusted earnings per share are expected to be between 85 cents and 87 cents, actually a penny above the 85-cent consensus at the midpoint. Operating fourth-quarter EBITDA (earnings before interest, taxes, depreciation, and amortization) is expected to be about $715 million, operating cash flow about $640 million, and adjusted free cash flow is expected to be about $500 million. That compares to estimates, according to FactSet, of $746 million, $573 million and $447 million, respectively. So, cash looks good, but EBITDA is soft. As for a current quarter outlook, the real reason the stock is taking such a hard hit and why we aren’t rushing to scoop up shares just yet, management is forecasting first-quarter sales of roughly $2.8 billion, operating EBITDA of about $610 million, and adjusted EPS in the range of 63 to 65 cents. These forecasts represent across-the-board misses versus Street expectations for sales of $3.04 billion, operating EBITDA of $751 million, and earnings of 88 cents per share. In a glimmer of hope, management said that things should improve sequentially going forward with an expectation for operating EBITDA to increase about 10% versus the first quarter’s level, which given the forecast above, amounts to $671 million. That’s still not great versus expectations of $800 million but in the right direction. Given the slower recovery and impact on 2024 earnings, we are reducing our DuPont price target to $78 per share from $85. As we mentioned in our Caterpillar trade alert, we see no reason to rush in and buy here. To buy back in the mid-60s what we sold in the mid-70s is tempting, but for now, we’re reiterating our 2 rating . We are waiting for the stock to stabilize, and want to hear more from management when it reports on Feb. 6. When it reports, we fully expect management to announce an aggressive share repurchase program to begin the process of restoring market confidence in the stock. They have the cash flow and balance sheet to do so, and it would be prudent of ahead of the electronics inflection point — especially if these destocking headwinds are temporary. DD 1Y mountain DuPont 1 year Even if we don’t catch the bottom, the risk/reward isn’t favorable at the moment because not only will analysts now go back and shave fiscal year 2024 estimates by at least 24 cents to reflect the first quarter miss but also likely need to pull down future quarter estimates to reflect the slower than anticipated recovery. The strong cash generation, however, and management’s focus on improved efficiency keeps us interested as cash is what carries a company through tough times and improving efficiency during those times is what helps to ensure greater potential upside once the storm clouds part. Regarding the timing of efficiency initiatives, management said in Wednesday’s press release, “We have acted quickly in executing the restructuring actions announced last November and will begin to realize associated cost savings later in the first quarter.” We’ve seen this destocking dynamic hit other stocks we own including Nvidia , Danaher and Advanced Micro Devices , before our August exit. If those stocks tell us anything it’s that when the stocks are already being hammered on news of destocking headwinds, it’s likely not the time to sell if management has a good handle on it. It remains to be seen with Dupont, hence our patience. You don’t have to rush in and buy either. Patience is usually rewarded. After all, you usually don’t get a good entry point on strong longer-term stories when things are going great. You get them when there is a hiccup outside of management’s control. Danaher has made a very nice move off of its late October 2023. Nvidia has been a juggernaut since its October 2022 bottom, tripling last year and plowing ahead to record high after record high in 2024. It would have been nice to still be sitting in AMD, which has seen nice gains. But we aren’t kicking ourselves too much on AMD, which is now back in our Bullpen watch list , as the funds from that sale allowed us the opportunity to get into Broadcom , which may not be up quite as much but up a lot nonetheless and hitting record highs. Broadcom also adds a bit more diversification given our position in Nvidia. (Jim Cramer’s Charitable Trust is long DD, CAT, NVDA, DHR, AVGO. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. 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A DuPont sign is shown at the company’s world headquarters in Wilmington, Delaware.
Jeff Fusco | Getty Images
DuPont preannounced disappointing earnings results before the opening bell Wednesday, sending the stock down roughly 13%. We’re not going to buy that dip.
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