A 210 Year Old Sleeping Giant
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a great way to gain a detailed and thorough perspective on a company and its future. As 2012 draws to a close, I would like to focus on a company founded in 1802, a 210 year old sleeping giant that can be purchased today at the same price as in 2000: E.I. du Pont de Nemours & Company (NYSE: DD).
- Solid Revenue Growth: In 2006, DuPont reported revenue of $27.5 billion; in 2011, the company announced revenue of $38.0 billion, representing year over year annual growth of 6.68%. This trend is widely anticipated to continue into the future, with projections placing 2015 revenue at $42.2 billion. This is thanks to a combination of an increase in market share in the performance and materials market, as well as the agriculture and nutrition-based products market
- Dividend: At the moment DuPont pays out quarterly dividends of $0.43, which puts the dividend as yielding 3.84% annually
- Reasonable Valuation: The company currently carries a price to earnings ratio of 15.01, a price to book ratio of 5.00, and a price to sales ratio of 1.09, all of which point to a company that has a fairly reasonable valuation
- Institutional Vote of Confidence: 65% of shares outstanding are held by institutional investors, displaying the confidence some of the largest investors in the world have in the company and its future
- Cash & Equivalents: Currently DuPont possesses about $3.1 billion of cash and cash equivalents on their balance sheets, a major upside to the business
- Established & Diversified Nature: DuPont is valued at $41.72 billion, employs 70,000 people, has been in business for 210 years, operates in nearly every major market in world, and has identified a distinct market for their products and services. With this established and diversified nature comes a certain level of security and predictability
- Single Digit Margin: DuPont currently possesses a net profit margin of 9.15%, which is below the ideal double digit mark and leaves little room for unexpected expenditures; these tight margins are a result of DuPont's struggle to remain competitive
- Debt: Currently, the company possesses about $10.5 billion of debt on their balance sheets, a major downfall to the business
- Operating Expenses: When a business expands, the costs related to operating that business will expand; however, over the past 10 years operating expenses have outgrown revenues, an ominous sign
- Acquisitions: In May 2012, DuPont acquired Solae LLC, and further acquisitions in the future could introduce new technology to the company and fuel growth
- Dividend Growth: Since implementing their dividend program in 1904, DuPont has consistently raised their dividend payouts, and this trend is widely anticipated to continue into the future
- Innovative Nature: DuPont’s success is built on its innovative nature, with the company investing $2 billion annually on research and development, and innovations could introduce new technologies to the company and fuel growth
- Expanding Market: DuPont’s main business segments, performance and safety materials and agriculture and nutrition, have both grown in the past few years, and according to analyst projections will continue to grow into the future
- Competition: The industries DuPont operates in are rather competitive, and any competition in these industries to offer the best products for the least amount of money can lead to margin compression
- Rising Input Prices: If any of the numerous materials DuPont utilizes in any of its operations were to rise in price, the company would be faced with the difficult choice of either passing the extra costs onto their customers or swallowing the pain in their margins
Major publicly traded competitors of DuPont include Dow Chemical (NYSE: DOW), Syngenta AG (NYSE: SYT), FMC Corporation (NYSE: FMC), and PPG Industries (NYSE: PPG). All of these companies offer products and services similar, if not identical to, those of DuPont. Dow Chemical is valued at $38.52 billion, pays out a dividend yielding 3.99%, and carries a price to earnings ratio of 24.78. Syngenta is valued at $37.00 billion, pays out a dividend yielding 2.13%, and carries a price to earnings ratio of 22.31. FMC is valued at $7.96 billion, pays out a dividend yielding 0.93%, and carries a price to earnings ratio of 19.20. PPG is valued at $20.45 billion, pays out a dividend yielding 1.77%, and carries a price to earnings ratio of 22.28.
The Foolish Bottom Line:
DuPont is a financially solid company with good revenue growth, an expanding dividend, and a future filled with potential growth. However, the company possesses a massive debt load, and its stock price has been flat for nearly a decade. All in all, DuPont is an established and diversified giant, but in the end possesses too much debt and too little growth.
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