DuPont prepares to say goodbye to electronics. What investors get with the remaining company
5 min read
Earlier in the week, we looked at the upcoming DuPont electronics business spinoff and what investors are getting with the new Qnity Electronics, which has a strong foothold in the semiconductor industry. Now, here is a look at what will be left of the new DuPont after the planned Nov. 1 split and the stocks starting to trade separately two days later. With electronics out of the picture, the new DuPont will focus on four key markets: health care, water, and diversified industrials. The revenue split is about 25% health care, 24% construction, 22% water, 16% industrials/aerospace, printing and packaging, as well as 13% automotive. Health care DuPont’s health-care business has been a consistent mid-single-digit organic sales grower with exposure to medical packaging, medical devices, biopharma/pharma, and protective garments. According to the company, more than 90% of the top 25 U.S medical device companies use DuPont technology to deliver their most advanced products. The company sizes up health care as a $13 billion addressable market that is growing faster than gross domestic product. It’s led by megatrends such as single-use systems, occupational safety requirements, higher performance materials, and medical device miniaturization. Water DuPont is a leading player in the water industry, specializing in end markets like industrial water, municipal and desalination, life sciences and specialty, and residential and commercial. The business also plays an important role in the semiconductor fabrication process. Over 60% of ultrapure water for semiconductor processes is purified with DuPont’s exchange resins. The company views its water franchise as a consistent mid-single-digit organic sales grower operating within a $7 billion addressable market that is growing faster than GDP, led by trends like freshwater scarcity, growth of water-intensive industries, increasing regulation, and sustainability. Among these trends, management views water scarcity and tightening regulatory requirements as the most favorable, with the company’s portfolio aligned to both. Remember, DuPont nixed its planned spinoff of water and decided to retain the business within the new DuPont to enhance the attractiveness of the new company. Industrials The industrial side is the more cyclical part of the business whose fortunes are more closely linked to the broader economy. Here, Dupont has exposure to construction, automotive, industrial and aerospace, and printing and packaging. One area of leadership is in automotive: all top 10 global auto original equipment manufacturers (OEMs) use DuPont’s adhesives. The transition to electric vehicles plays into its hand, with EVs featuring about double the DuPont content compared to internal combustion engine vehicles. In aerospace, 97% of aircraft builds use the company’s Vespel parts. The company views its industrial exposure as a $21 billion addressable market, but growth is heavily dependent on GDP and the broader economy. Some megatrend growth drivers the company pointed out are electrification, the shortage of homes in the U.S., aerospace, and sustainability. Financials Let’s turn to the financials. Looking back, Dupont’s net sales have increased at a 2.4% compound annual growth rate from 2019 to 2025, matching the average of a multi-industry peer set provided by the company. That peer set includes 3M , Parker-Hannifin , Illinois Tool Works , ITT , and fellow Club names Honeywell and Dover . The company’s EBITDA margin in 2025 is a little below the peer set average at 23.6% versus 25.7%. From a valuation standpoint, DuPont trades at an Enterprise Value to EBITDA multiple of 11.4, representing a massive discount to the peer average multiple of 16.7. EBITDA stands for earnings before interest, taxes, depreciation, and amortization. Sure, DuPont’s margins trail the group a bit, but we’ve always thought the market’s discount goes too far. Part of this discount may be related to DuPont’s lingering liability around PFAS forever chemicals, despite the company’s multiple efforts to ring-fence and contain its legal exposure. There’s also been a ton of moving parts to the DuPont story through the years. Between combinations, breakups, divestments, and acquisitions, it’s not always been a clear picture. Looking forward, management’s medium term financial targets, through 2028, call for 3% to 4% sales growth compound annual growth rate (CAGR). The math behind DuPont’s revenue target is based on 5% organic CAGR growth in Healthcare and Water markets and 2% organic CAGR growth in building and industrial end markets. On margins, Dupont is targeting a 150 to 200 basis point improvement in operating EBITDA margin, driven by leverage on net sales growth, stranded cost reduction related to the spin, and a benefit from productivity initiatives. Turning to the bottom line, management is targeting 8% to 10% adjusted EPS growth compound annual growth rate. Excess free cash flow used for mergers and acquisitions (M & A) or share buybacks would be incremental to the earnings growth rate. DD YTD mountain DuPont YTD The company has a long history of active portfolio management. It’s moved out of slower growing, lower-margin business and used its excess cash to acquire secular-growing, higher-margin assets. More recently, the company announced in August that it will divest its Aramids business in a deal that values it at $1.8 billion. The Aramids business is home to the synthetic fiber brands Kevlar and Nomex that specialize in fields like heat resistance and personal protection. We expect management will use the cash proceeds from this sale to bulk up its healthcare and water business. By doing so, the company should see an improvement in its overall growth rate and margins, which could help the stock command a multiple closer to peers in the market. What about valuation? How to value new Dupont has created an investor debate that isn’t as clear-cut as Qnity. In theory, shedding a higher multiple asset, like Qnity, should result in some form of multiple compression for the new DuPont. But the company currently trades at a heavy discount versus its multi-industry peers. There should be some appreciation for a more simplified structure and management, but how to value the business will be more of an art than a science. Bottom line It’s been a long 18 months since DuPont announced its plan to split up. Throughout this time, the stock has been stuck in what is known as spin purgatory , with investors delaying interest in DuPont until closer to the breakup date. The end of this waiting game is finally near. With the spin in sight, our thesis remains that the upcoming breakup will allow both new companies to trade at multiples closer to peers, thereby creating value for shareholders. (Jim Cramer’s Charitable Trust is long DD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
