Tickers in this Article: DD, DOW, HUN, ALB, OXY, RPM, EMN
The good news about DuPont (NYSE:DD) is that it is not just some commodity chemical player, forever at the mercy of cycles it cannot control. No, DuPont is a highly-diversified player in a wide variety of businesses, many of which are either counter-cyclical to each other or not especially cyclical at all. Well, in point of fact that is actually both good news and bad news - for while DuPont has enough diversification to smooth out some of the worst of the cyclical swings, it also has enough diversification to tone down even hot segments to an overall level of lukewarm.

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A Good Enough Finish to the Year
Even DuPont's fourth quarter earnings were an exercise in good news and bad news. To the good, the company reported that sales climbed 15% to about $7.4 billion - a fine performance that surpassed even the highest estimates. Growth was fueled in part by double-digit volume growth, and the company saw strength in the U.S., Asia and Latin America.

Unfortunately, the company did not do nearly so well on its profitability. The company did okay at the gross margin level, but operating income was a little disappointing. Moreover, while the company did beat the average estimate by 18 cents, 15 cents of that came from an unexpectedly low tax rate. Consequently, a much better top-line performance delivered only three extra pennies of earnings. Not exactly an exciting result.

Looking at the segments, some of the trouble becomes more apparent. Revenue in the sector was up a solid 13%, but the company actually worsened its operating loss from a year ago. Although the company did see very solid operating leverage in electronics and communications and performance chemicals, businesses like Performance Coatings and Safety/Protection weren't so exciting. Some of the trouble was due to input costs, ironic in a sense given that DuPont is so often grouped with those basic input producers.

This and That
Investors can certainly pick through the details of DuPont for interesting nuggets of information. For instance, the performance in Electro-Comm and Performance Chemicals should be encouraging for Dow (NYSE:DOW) and Huntsman (NYSE:HUN), respectively, while it seems that RPM (NYSE:RPM) is doing better than DuPont's Coatings performance would suggest (though comparing these two companies on a one-to-one basis is not really fair to either).

DuPont is a bit tricky to assess because it is not really a basic materials company like Dow or Occidental Petroleum (NYSE:OXY) and it is more diversified than other "specialty chemical" companies like Albemarle (NYSE:ALB) or Eastman (NYSE:EMN). And yet, for all of the moves that DuPont has made in expanding into growth markets like seed traits, the performance of the company is still highly correlated to global GDP performance.

That, then, could be a mixed blessing. The global economy does seem to be on the road to recovery, but worries about inflation are popping up in places ranging from China to Brazil to Poland. As a result, almost every central banker not named "Bernanke" has its finger hovering over the "raise rates" button - a move that could put the brakes on global growth, and by extension, DuPont's performance. (For more, see Inflation: Introduction.)

The Bottom Line
Depending upon how investors want to approach the valuation of DuPont, the stock is either a little cheap or a little overpriced. A discounted cash flow analysis suggests a fair value somewhere in the low $40s, while comparing the current valuation to the company's 10-year median EV/EBITDA multiple suggests undervaluation of about 10%.

Given its diverse base of business, quality management and obvious desire to be in value-added businesses, DuPont is a good core long-term holding, particularly for those who like to collect dividends. The only problem with that scenario is that stocks fitting that profile should be bought when they're cheap, and DuPont does not quite seem to measure up to the standard just yet. (For more, see Dupont - From Gunpowder To Plastics To Yogurt.)

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