Is DuPont the Chemical Stock to Own Now?

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It's been an interesting time in the chemicals industry, with some players raking in the moola from high chemical prices, while others are enjoying the benefits of passing on higher costs to consumers.

Chemical giant DuPont (NYS: DD) features in the first category. High titanium oxide (TiO2) prices boosted the Delaware-based company's second-quarter numbers, encouraging DuPont to raise its full-year earnings guidance. But numbers aren't enough to decide whether the stock is worth investing in. I am going to take a deeper look to help Fools decide whether the stock deserves a watchful eye now.

Operational performance
Strong top-line growth of 19% helped boost DuPont's second-quarter bottom line by 17%. With volumes increasing in all segments and regions, the company has been doing pretty well on the sales front. This is better reflected in the one-year compounded average revenue growth rate of 16.6%. Compare this with a lower five-year rate of 5.1%, and I can attribute the recent growth to higher TiO2 prices.

DuPont's bottom line growth is also at a decent compounded annual growth rate of 12.7% over five years.

Growth moves
Seed makers, food companies, pigments, aquaculture, solar energy -- DuPont has been keeping all areas in mind while investing.

What impresses me is the fairly quick integration I can see. The acquisition of food company Dansico, for instance, was completed in May but has already contributed 3% to DuPont's second-quarter sales.

The company has been expanding in emerging markets, as well as trying to gain a greater foothold in markets such as solar energy through recent acquisitions like that of Innovalight. These moves seem to be fitting in well with DuPont's business lines.

Stability
DuPont's debt-to-equity ratio appears high at 118.3%, primarily because of its expansionary investments. But what is important to note is that the company has ample cash on its books. Its total cash and equivalents stands at $2.27 billion, while unlevered FCF is at $1.05 billion as of June 30. The interest coverage ratio also looks good at 7.6 times.

Value insights
Let's take a look at how DuPont's valuation stacks up next to its peers:

Company

Trailing P/E

P/S

P/BV

DuPont18.531.213.67
Kronos Worldwide (NYS: KRO) 11.930.531.57
Huntsman (NYS: HUN) 11.411.312.79
PPG Industries (NYS: PPG) 11.840.281.40
Dow Chemical (NYS: DOW) 12.660.842.91

Source: Capital IQ, a division of Standard & Poor's.

DuPont might not look like a bargain if you look at the earnings multiples. Price-to-book value also remains high, but it might not necessarily mean that the stock is overvalued. Since DuPont's ROE is decent - even for its debt levels -- at 33.2%, I feel the market considers it to be a company that is capable of generating high returns on assets as well as equity, hence fairly factoring the same in its price. Moreover, I also quite like the company's dividend yield of 3.5%.

The Foolish bottom line
A strong business line, global presence and great performance numbers are things that are working for DuPont. Any dip in its price could be a good time to enter the stock.

To stay up to speed on the top news and analysis on DuPont, or any other stock, click here to add it to your stock watchlist.

At the time this article was published Neha Chamaria does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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