Basic materials giant DuPont (NYSE:DD) reported first quarter results in mid-April 2012, that sales rose in the double digits but profits grew much more modestly. In the coming few years, the company plans to leverage similarly strong sales into even stronger profit growth. Combined with the reasonable valuation and solid dividend, investors should take note.

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First Quarter Recap
Sales jumped 12.2% to $11.2 billion and was led by a 15% jump in emerging markets. U.S., Canadian and European growth was very strong at between 13 and 14%. Latin America was even stronger, but only accounts for about 11% of the total top line. Asia was stagnant at $2 billion, or nearly 18% of total sales. By product segment, agricultural sales jumped 16%, while the nutritional and health unit witnessed a 150% jump in sales. The only laggards were electronics and performance materials, which logged declines of 17 and 6%, respectively.

Total costs rose 11.5% to lag sales growth and result in pre-tax income growth of 14% to $1.9 billion. This represented a healthy pre-tax margin of 17%. Agricultural, which competes with the likes of Monsanto (NYSE:MON) and Archer-Daniels Midland (NYSE:ADM), led the way again with growth of 13.8% and unit profits of $1.3 billion, and performance chemicals saw a 30% jump for profits of $512 million. Electronics, performance materials, and safety and protection reported profit declines. Higher tax expense slowed the net income increase to 4% as the bottom line reached $1.5 billion, or $1.57 per diluted share.

SEE: Understanding The Income Statement

Outlook and Valuation
For the full year, DuPont projects earnings growth between 7 and 12% and total profits in a range of $4.20 to $4.40. Analysts expect sales growth just north of 9% and total sales of nearly $41.5 billion.

The consensus profit projection is $4.29. Based off the current share price of $51.75, this puts the forward P/E at 10.8. This is below the market average of 15.5 and DuPont's five-year average earnings multiple of 14.1. Dow Chemical (NYSE:DOW) trades at 10.33 and CF Industries (NYSE:CF), though more of a commodity producer of fertilizer, trades at around 9.05.

The Bottom Line
DuPont reported negative operating cash flow during the first quarter but generated approximately $3.52 in free cash flow for all of last year. It also sports an above-average current dividend yield of 3.1%. Over the past three years, sales are up less than 7% annually, but profits have jumped at a nearly 19% annual average clip.

Management has ambitious goals to grow earnings by 12% annually through 2015. It expects to grow sales 10% annually and could end up with $6 in earnings per share within three years. Using the current multiple, this suggests a share price as high as $75 per share, or more than 40% ahead of current levels. Combined with the annual dividend, investors could garner total returns of 15% or more for the next several years.

SEE: 5 Must-Have Metrics For Value Investors

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

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