DuPont Earnings: Electronics and Semiconductor Slowdown Nearing Bottom of the Cycle

After updating our model to incorporate DuPont’s DD second-quarter results, we are maintaining our $92 fair value estimate. Our narrow moat rating is also unchanged.

DuPont’s stock was down slightly Aug. 2 as management cut its full-year guidance because of a slower recovery in the electronics business than previously forecast. At current prices, we view DuPont shares as undervalued, trading in 4-star territory and at a more-than 15% discount to our fair value estimate.

In the electronics business, management now expects a 10% revenue decline in 2023. We had previously assumed a high-single-digit decline, but have trimmed our semiconductor subsegment forecast and think DuPont’s revised guidance is reasonable. As a result of the volume decline from the end-market slowdown, DuPont is planning to reduce production at its manufacturing plants to better align inventory with demand. While this will weigh on near-term profits for the segment, we had already assumed lower profits in 2023. Accordingly, the slightly lower near-term segment outlook is not enough to change our fair value estimate.

Despite the near-term slowdown, we see effects on our outlook for long-term profit growth in this business. In the electronics segment, DuPont’s key end markets are semiconductors and components that allow devices to connect to Wi-Fi or Bluetooth. Despite a near-term slowdown in demand for these products, we see a long-term volume growth. Accordingly, as DuPont runs its plants closer to normal capacity in 2024 and beyond, we expect profits and margins will recover in fairly short order.