Don't Sell Your DuPont Shares Yet

In fact, with a merger ahead and earnings coming Tuesday, it's time to buy more of this proven winner.
By Richard Saintvilus ,

Chemicals and agriculture company DuPont (DD) - Get Report will report second-quarter earnings before the opening bell Tuesday.

DuPont shares have been stagnant at around $68, climbing about 3% in the past three months although in line with the broader market. The lack of a breakout, combined with its recent consolidation, is one reason to expect the shares to move higher from here. Solid results on Tuesday would be the beginning.

All of that said, if you've bought DuPont based on my Jan. 21 recommendation, you're up 30% and playing with house money. And there's still that pending merger with Dow Chemical (DOW) - Get Report , a holding in Jim Cramer's Action Alerts PLUS portfolio, still in play. Federal regulators appear willing to give the merger the green list, taking away a lot of risk, despite the higher stock price.

Take a look below, courtesy of TradingView.

The shares, which have declined 1% in the past month, have soared 25% in six months. As the stock has risen, analysts hiked their earnings expectations.

Since the start of the just-ended quarter, DuPont's full-year estimates have risen 4% to $3.15 from $3.03 per share. During that span, estimates for fiscal 2017 have risen to $3.66 from $3.51, or more than 4%. This puts next year's earnings growth forecast at around 16%, which is more than three times the S&P 500 (SPX) .

On a year-to-date basis, DuPont stock is up only 2.8%, compared to a 6% rise for the S&P 500 index. This doesn't make sense when the company is seeing its estimates rise.

Why are estimates climbing? Obviously, the Dow Chemical merger is being factored in. But it appears analysts expect the merger synergies, including cost cutting and layoffs, to accelerate DuPont's earnings growth. Plus, the idea that both companies can better realize research and development advantages means they can innovate more quickly, which should also boost their long-term revenue prospects.

So although the strong U.S. dollar could take a near-term toll on revenue on Tuesday, the long-term benefits, which can boost shareholder returns, are too much to pass up. Add in DuPont's solid 38-cent per share dividend that yields 2.22% annually, or 22 basis points higher than the S&P 500 index, and there's tons of long-term value here.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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