Sounds like maybe the merger that was completed on 31 August of last year between Dow Chemical and DuPont to make one holding company just does not fit, which is good because the firm has made it plain since the beginning that it plans to split into three independent companies.
Something had to be done. The combined entity once the numbers are meshed, runs with a three year earnings per share growth rate of -2%, and a three year sales growth rate of exactly zero. Not exactly the stuff of legend. On the plus side though, for the last quarter sales did grow by more than 54% year over year. The firm's cash position has grown to more than $14B, while total debt has also climbed, though not quite as quickly...to $34B. The combined entity appears more than capable of meeting obligation as it's current ratio stands at a very healthy 1.9, and sans inventory, the quick ratio remains robust at 1.2.
Why Now? If Now?
Why get involved now? Well for one, the S&P 500
The elephant in the room is the expected three way break-up. The three independent firms are expected to end up looking like this:
1) Corteva Agriscience. This is currently the agricultural division. This division ran with more than $14B in 2017 pro-forma revenue, and $2.6B in 2017 pro-forma EBITDA. This is the unit that in the event of ongoing trade tensions with China might be impacted the most. The expectation is for this firm to be spun off by June 1 of 2019.
2) Dow. Currently the Materials Science Division, this firm will retain the Dow brand, the Dow diamond logo, and assume the mantle of Dow Chemical's 121 year corporate history. This branch posted a whopping 2017 pro-forma revenue number of $44B, though 2017 pro-forma EBITDA drops to just $9.1B. This division is projected to stand alone by the end the first quarter next year.
3) DuPont. This spin-off will be advertised as a specialty products company, and will assume the 215 year legacy of the old DuPont. Broken out, the portion of the business that this would comprise would have posted pro-form 2017 revenue of $21B, with 2017 pro-forma EBITDA of $5.3B.
Of course not. What we are aiming for here is eventual value unlocked three ways that amounts to a significant increase over the value the firm allows as one unit. We do not need to be as exact in this name as we might be in a normal situation. In other words, precision will be impossible, so we're using mortars here, not sniper rifles.
I like the fact that the firm can defend itself short-term. I like the fact the the firm is trading at valuations below that of the S&P 500 and the DJIA. I like the fact that the firm pays you 2.3% just to own the shares. I like the fact that the share price rebounded this month off of a 31.8% re-tracement of the move off of the January 16th adjusted low (deal was announced December 11, 2015) through the January 2018 high.
What I Suggest (...and am likely to do myself)
1) Leg in small. One tenth to one eight of your intended position size is fine. There is still a danger that the share price retests the 61.27 2018 low, and you want to have some dry powder ready if it does.
2) Feeling adventurous? These deals are expected to start moving by early 2019. 2019 January $50 puts were still paying $1.09 on Friday. Knocking a $1.09 off of your basis will leave you some risk should the shares simply collapse. That's the risk/reward ratio that you have to decide for yourself. The June 2018 $60 puts were still paying $0.75 on Friday. Just another idea.