DuPont Earnings: Electronics and Semiconductor Slowdown Will Weigh on 2023 Profits

We trim our DuPont DD fair value estimate to $92 per share from $95 after incorporating DuPont’s first-quarter results into our valuation model to reflect lower near-term profits than we had previously forecast. Our narrow moat rating is unchanged.

DuPont shares were down 8% at the time of writing as management lowered 2023 guidance largely due to the company’s outlook for the downturn to last longer into 2023 than prior guidance. We view DuPont as materially undervalued with shares trading more than 30% below our updated fair value estimate. Shares trade just slightly above our downside scenario, which produces a fair value estimate of $60 per share. Our downside scenario assumes low-single-digit revenue growth over our five-year forecast with lower EBITDA margins versus 2022. As such, we view the selloff as an excellent opportunity for long-term investors to pick up DuPont shares with a solid margin of safety.

In the electronics and industrial segment, we forecast the cyclical decline will extend longer in 2023 than we had previously forecast. The segment saw revenue and EBITDA decline 16% and 24%, respectively, during the first quarter versus the prior-year quarter. Our fair value estimate had already assumed a mid- to high-single-digit revenue decline in the electronics and industrial segment in 2023, but we have now revised our outlook for a high-single-digit decline. We now think the cadence of the year will likely see second-quarter results also see a decline in EBITDA, but the second half of the year should see sequential improvement each quarter.

Regardless, the electronics industry is fairly cyclical. While near-term results will reflect the bottom of the cycle, we forecast a strong long-term growth rate. This will be driven by the rise in advanced semiconductors and the materials needed to make them as well as higher adoption of Internet of Things technologies, which should drive long-term growth in the interconnect solutions subsegment.