While it flies somewhat under the radar, the global chemical industry generates trillions of dollars each year. However, the performance of companies in this sector is tied closely to other industries, including oil. In fact, most chemical companies manufacture polymers or plastics, which are derived from petrochemicals.
Chemical industry products are used by manufacturing-heavy companies, such as those in the automobile space, as well as by consumer goods companies. In addition, some of these products are used in the agriculture and infrastructure sectors
Given that the fortunes of companies in the chemical industry are linked with several others, the sector could be considered cyclical. So, with these factors in mind, let’s see which chemical stock—Dupont (DD) or Chemours (CC)—is a better bet now.
The bull case for Dupont
Wilmington, Del.-based Pont is a much bigger player than Chemours and is valued at a market cap of almost $42 billion. Its products are used by companies across industries, including construction, healthcare electronics, and transportation. Earlier this year, DuPont spun off its nutrition and biosciences business and completed the $2.3 billion acquisition of Laird Performance Materials. The deal should allow DuPont to gain traction in the electronics and autonomous vehicles space, among many others.
Dupont’s sales are forecast to decline by 19% to $16.5 billion and then rise by 5.3% to $17.38 billion. Its adjusted earnings are forecast to rise at a 13.7% annual rate over the next five years. This suggests that Dupont stock is valued at a 2.4x price-to-sales multiple and an 18.6x price-to- earnings multiple. Dupont offers investors a 1.6% forward yield and is forecast to rise by 12% in the next year, according to consensus estimates.
The bull case for Chemours
The Chemours Company, which is also headquartered in Wilmington, Del., provides performance chemicals in the Americas, Asia-Pacific, Europe, Middle East, and Africa regions. It sells products through direct channels as well as through a network of resellers and distributors. Valued at a market cap of $5 billion, Chemours has seen its revenue decline from $6.18 billion in 2017 to $4.96 billion in 2020. Its operating income has fallen from $1.09 billion to $465 million in this period.
Despite declining sales, Chemours stock has more than doubled in price over the last five years, after adjusting for dividends. However, it has managed to increase its quarterly dividend payment from $0.03 per share in November 2016 to $0.25 per share in 2021.
Wall Street now expects the company to increase its sales by 23.6% to $6.14 billion in 2021 and by 5% to $6.5 billion in 2022. Its adjusted earnings are forecast to rise at an annual rate of almost 30% over the next five years.
We can see that Chemours stock is attractively valued, given its forward price to sales of less than 1x and its price-to-earnings multiple of just 8.2x. Analysts expect the stock to rise by 30% in the next year, making it a solid buy for value investors.
While both the stocks are expected to post double-digit gains going forward, we think Chemours is a better buy due to its higher dividend yield and cheaper valuation. Chemours has easily outpaced Dupont over the last five years and this trend is likely to continue in the future.
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CC shares were trading at $29.29 per share on Thursday afternoon, down $0.86 (-2.85%). Year-to-date, CC has gained 21.11%, versus a 25.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...
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