hey YouTube I'm Jimmy in this video I'm gonna walk through my analysis of Dow
DuPont ticker symbol DWDP well that's the ticker for now they're actually in
the middle of breaking up the company but we'll come back to that in a second
this is the tenth video in a series where we're analyzing all 30 stocks in
the Dow Jones Industrial Average we're then going to take that analysis and try
to build a few different great portfolios most likely a dividend
portfolio of value portfolio and a growth portfolio you could see a link to
the playlist in the description below so as I mentioned a moment ago Dow DuPont
is in the middle of a reorganization that's expected to be completed by June
of 2019 so in this video I'm going to focus mostly on what the future will
look like if we'd like to add this company to our portfolio so back in 2017
Dow Chemicals merged with DuPont to form Dow DuPont
well now Dow DuPont is spinning their combined business into three different
businesses first their agriculture business which is going to be called
Corteva Agriscience going forward next is the materials business this is going
to keep the Dow name and then finally the specialty products business well
they're going to keep the DuPont name so as potential investors we have three
primary choices when it comes to DowDuPont's stock first we walk away we
simply say that Dow DuPont stock isn't for us and we don't really like it so we
walk away easy enough second we buy DWDP stock before the spin-off and then we
end up with a piece of all three companies this could be a good move if
there's value in doing it we're gonna spend most of this video focusing on
that and then finally we wait until the spin-off is done and we analyze those
companies then and determine if we want to jump in to any one company now the
timing of this analysis was actually quite lucky because
DWDP just reported earnings so the numbers are quite fresh so in q3 2018
DWDP reported about 20 billion dollars in revenue this brings their
year-to-date numbers to about 65 billion in revenue through the first three
quarters now this is how they break out their revenues by segment the largest
segment is packaging in specialty plastics with about 6 point 1 billion of
revenue the smallest is electronics and imaging
with about 1.2 billion in revenue now let's break these segments into what the
three new businesses will ultimately look like first is agriculture they're
the simplest we can see that agriculture put up about 1.9 billion in revenue in
the last quarter this chart this is the quarterly history of the agriculture
segment we can also see that this is a very seasonal business which makes sense
it being agriculture and what this business does is they sell seeds and
crop protection products so in the third quarter we can see that their most
recent quarter looks like the weakest quarter for them historically while the
first quarter has historically been the strongest but then last year it looks
like q1 was down a bit and q2 was the strongest quarter yet so before I go any
further here's where I'm aiming with the valuation and more generally the DWDP
stock analysis as a whole so we're going to use a valuation method called a sum
of the parts valuation method basically what we do is we look at each segment of
the business and try to value each segment as if it were a standalone
company and then all you really have to do is add up the value of each of those
segments and in theory what we end up with is the value of the business today
now Dow DuPont is perfect for this because well they're actually breaking
up the company so this is really the only realistic way to value the business
but I've also seen analysts use this valuation method on other conglomerates
and basically it takes the assumption that you're buying the stock is if
you're going to take over the business basically what would be worth if you
broke it all up it's a decent valuation method I like using when it works out
when you have enough information to do it in this case we have enough
information so that's what we're aiming for okay going back to the agriculture
business so we know what revenue has been from a quarterly perspective but
when we flip that over to annuals we can see we've only got a couple years
because don't forget it's only been DowDuPont has only been in existence for a
few years so it's a short history but we'll make do with it
now if we add analyst projections for this particular segment here's what it
looks like now to value the business we really need more than just revenue
so luckily Dow DuPont gives us EBITDA and ultimately EBITDA margins
now this Purple Line this is EBITDA margins this includes analyst
projections for EBITDA margins going out the next couple years so now we
could try to calculate the value of this entire company using enterprise value to
EBITDA first thing we need is some competitors so we can see what peer
multiples look like and if you look at companies like Monsanto which is now
part of Bayer and FMC they look like decent peers to use and what we compared
their multiples and margins free cash flow going out the next couple years our
earnings growth things like that it looks like 12x on 2019 enterprise value
is a fair multiple to use now this gives us an enterprise value of a bit of a
thirty nine billion dollars for this segment now we still have to account for
cash and debt before we can come up with a fair value but in our case we can hit
that at the end since we're not a hundred percent sure where there's seven
billion dollars in cash and twenty seven billion dollars and long-term debt is
gonna land which companies are going going to go to for this valuation it's
not going to matter too much for us because we're trying to value DWDP as a
whole so in our case we can just deduct it at the end and that will be just fine
it'll turn out to be about the same so now we're into the materials business
they're going to keep the Dow name okay so here are the original segments again
and these are the segments that are going with the new Dow business this
chart this is the materials business as a whole the revenue history two years in
history three years of projections the Purple Line is once again EBITDA
margins we can see that EBITDA margins are expected to be rather consistent
over the next few years now this business is broken into three sub
segments packaging and specialty plastics they're the largest industrial
intermediaries and infrastructure they're the next largest and then the
performance materials and coatings is the smallest although they're not very
small so now the question is what will this segment be worth what will the
business as a whole be worth when they spin it off now management has stated
that they want to spin this one off first by April 1st of 2019 but they
said that they're striving for EBITDA margins between 23 and 24 percent and
that seems reasonable and since they're expected to have north of 50 billion
dollars in revenue over the next few years it seems that this business is
going to be quite a solid business and it's also interesting to note that
management has stated they expect for this business to pay out forty-five
percent of net income as dividends every year okay so now we need peers, I think
that CE and LYB are reasonable peers to use for this segment now this segment
was a bit trickier than agriculture because where CE competes in the
materials and coatings division and it also competes in the industrial and
infrastructure division well it doesn't compete that heavy in specialty plastics
lyb on the other hand while they compete in specialty plastics and industrial and
infrastructure but they're not that heavy into materials and coatings so I
believe that if we use those two combined numbers then we can come up
with reasonable projections so with that in mind and given the margins and growth
projections it looks like 8x is a reasonable EBITDA multiple to use okay
using an 8x on 2019 expected EBITDA of over eleven billion dollars gives us
an enterprise value north of eighty billion dollars and once again we're
ignoring debt for now so for now let's just jump over to see what DuPont could
be worth du Pont's new businesses will be in the specialty products lines
DuPont will end up with the electronics and imaging division safety and
construction transportation and advanced polymers and nutrition and Biosciences
and as you can see analysts are expecting EBITDA margins to continue
to improve over the next few years okay now just like the materials business the
new DuPont business is going to compete in many different business lines so
we're going to need a few different piers looks like Versum Materials
competes with them 3m is a competitor Honeywell's a competitor and I could
even make a case for CE again so using these companies as competitors I
think it's fair to use a multiple of about 12 X again given the expected
EBITDA of over seven billion dollars in 2019 well that would put their
enterprise value and almost 86 billion dollars okay so let's do some simple
math first we need to subtract net debt net
debt is debt - cash this gives us a fair value of the equity of about 193 billion
dollars divide this number by the shares outstanding of about 2.3 billion shares
outstanding and we end up with a fair value of about $84 per share now from a
research perspective what I do to try to prevent myself from developing a bias
from tilting the numbers as I'm doing a fair value calculation is I try not to
look at their fair at the current market price of the stock until I've completed
my research and the fair value of the stock now if we compare DWDP's current
stock price of about 58 dollars to our 84 dollar calculated value we can see
according to this valuation method this stock is way undervalued now it was
actually quite excited when I first saw this because this could be a good
company to add to each of the portfolio's I'm interested to see what
the new Dow Company, what they pay for a dividend that could land this whole thing in the
dividend portfolio value or we just saw that that's an easy addition to the
value portfolio growth given that the upsides like 45% from here I'd say it
belongs in almost any portfolio assuming we believe in the calculations okay so
now as excited as I am about this valuation and about the business itself
there is a quick word of caution this chart this is the year-to-date
performance of DWDP and although most analysts are excited about the spin-off
and the spin-off news has been around almost the entire year well the market
is acting in the opposite manner by driving the stock price lower now
perhaps the market isn't too happy with call it the lack of clarity from the
company as to what company is going to get the debt what company's going to get
the cash where it's going to go they did recently announce who is going to be
management for different companies but there's still a lot of news to come out
so it might be a bit early and perhaps that is why the stock is trading at such
an enormous gap to what we calculate as fair value my question is what do you
think is DowDuPont worth adding to our portfolios or are we better off waiting
and then picking after the spinoff happen one of those individual companies
let me know what you think in the comments below and if you haven't done
so already hit the subscribe button and thank you for sticking around to the end
of the video and I'll see you in the next video thanks
For more infomation >> Spanking is ineffective, can lead to aggressive behavior, researchers say - Duration: 1:34. 
For more infomation >> Tampa Bay National Weather Service is finalizing reports of damage after 4 tornadoes hit Tampa Bay - Duration: 1:14. 
Không có nhận xét nào:
Đăng nhận xét