Our DuPont thesis is working according to plan. We're raising our price target

CNBC Finance

6 min read

A newly slimmed-down DuPont reported strong quarterly results on Tuesday, sending its stock to a new all-time high. Our long-running thesis is paying off as predicted. Revenue in the fourth quarter ended Dec. 31 was about flat versus 2025 at $1.693 billion; however, it outpaced the $1.688 billion expected by LSEG. Earnings per share (EPS) jumped 18% year over year to 46 cents, outpacing estimates of 43 cents, according to LSEG. DD 1Y mountain DuPont 1-year return Bottom line A solid first outing for the new DuPont, which on Nov. 1 spun off its electronics business into a new, independent public company called Qnity Electronics . The remaining DuPont is two units: health care and water, and diversified industrials. Our primary reason for starting a position in DuPont was that its breakup, announced in March 2024, would unlock value by allowing each company to operate more efficiently to meet demand in its respective end markets. Our bull thesis was based on the stock's price-to-earnings multiple re-rating higher from a depressed valuation after the spin. This has played out perfectly: Since the close on Nov. 3, the day of the split, shares of the new DuPont have rallied 40%, far exceeding the S & P 500 â²s return of less than 1%. Qnity, meanwhile, increased 13% over the same stretch and also hit a record high Tuesday. Investors have been rewarded for their patience on DuPont â for those of us who held onto Qnity shares, the future looks bright there, too. Qnity is scheduled to report earnings Feb. 26. Some of the price action in DuPont is theÂ recent market rotation out of technology and high-growth stocks and into more value-oriented stocks. However, DuPont's results have not disappointed. Sales came in ahead of expectations, thanks to strength in its healthcare and water business, which more than offset a small miss in the diversified industrials unit. On the other hand, strong earnings before interest, taxes, depreciation, and amortization (EBITDA) margin expansion in the diversified industrials segment more than offset a slight contraction in the health care and water segments, resulting in a still-beating estimate. Both segments delivered better-than-expected EBITDA, leading to strong earnings growth despite flat sales. Health care and water technologies benefited from mid-single-digit organic growth, led by medical packaging and medical devices. In water, sales increased organically in the low single digits, thanks in large part to strength in industrial water markets. We're pleased with performance in this segment, which we expect to be more stable than diversified industrials. For that unit, a high-single-digit organic decline in building technologies, due to construction end-market weakness, was compounded by a low-single-digit decline in industrial, where strength in aerospace was more than offset by weakness in printing and packaging. The aeropspace performance was expected based on results from fellow Club names Honeywell and Boeing . We anticipate some improvement as the year progresses. On the conference call with investors, management said it has begun to see a short-cycle recovery coming into the first quarter. Why we own it DuPont represents an industrial way to play the recovery in semiconductors and electronics, which have strong multiyear outlooks due to advancements in artificial intelligence. DuPont's plan to break itself up has sweetened the fundamental investment case. Competitors: 3M , PPG Industries Portfolio weighting: 1.88% Most recent buy: Aug. 5, 2025 Initiated: Aug. 7, 2023 The new-look DuPont is off to a good start. The benefits of more focused end-market exposure are clearly driving growth and will continue to support both organic sales growth and earnings in the years ahead. In addition to current quarter and full-year guidance, management reaffirmed the medium-term financial targets provided at its investor day event last September. Given the strong results and positive outlook, we are raising our price target to $55 from $44. However, we are maintaining our 2 rating, which means we'll wait for a pullback before considering buying more shares. Last week, we trimmed our position to pocket some gains after the stock's huge rally so far this year. Guidance For the first quarter, the team expects to deliver: Sales of roughly $1.67 billion, in line with expectations, according to LSEG, driven by organic growth of roughly 2% year over year (below the 4% FactSet estimate) plus another 2 percentage point tailwind from foreign exchange dynamics. Operating EBITDA of $395 million, slightly ahead of the $393 million expected, according to FactSet. Adjusted earnings of approximately 48 cents per share, also in line with expectations, according to LSEG. Guidance for full-year 2026: Sales between $7.075 and $7.135 billion, ahead of the $7.064 billion expected, according to LSEG, driven by organic sales growth of roughly 3% (in line with FactSet estimate) plus another roughly 1 percentage point benefit from foreign exchange dynamics. Operating EBITDA between $1.725 and $1.755 billion, ahead of the $1.7 billion expected, according to FactSet. 60 to 80 basis points of Operating EBITDA margin expansion. Adjusted earnings of $2.25 to $2.30 per share, ahead of the $2.17 expected, even on the low end, according to LSEG. Free cash flow conversion rate over 90%. In addition to financial targets, the team provided the macroeconomic assumptions underlying this forecast, including mid-single-digit growth in global surgical procedures and mid-single-digit growth in global water intelligence demand, except in China, where the team sees low-single-digit growth. In addition, management expects 2% global GDP growth; less than 2% industrial production growth; flat global auto sales relative to 2025, with weaker demand in the U.S. and Europe; and roughly flat U.S. construction activity relative to 2025. For fiscal year 2025 to fiscal year 2028, management expects: 2% to 4% organic annual sales growth. 150 to 200 basis points of EBITDA margin expansion. 8% to 10% annual earnings growth. A greater than 90% free cash flow conversion rate. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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Our DuPont thesis is working according to plan. We're raising our price target

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