DowDuPont Spinoff Corteva Gave a Look Inside. Now We Can Calculate Its Value.

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Corveta Photograph by Jake Gard
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Corteva has been preparing to be spun out of DowDuPont (ticker: DWDP) for more than three years.

The new company is the combination of two legacy agricultural franchises: a seed and trait company contributed by DuPont and a crop chemical company contributed from the predecessor company of the new Dow (DOW).

Corteva (CTVA) management met with analysts in Iowa on Thursday to try to help investors value the company.

Corteva is filling a hole in the marketplace once occupied by Monsanto. Even the event on Thursday was Monsanto-like. Monsanto would play host to frequent analysts events in Midwestern states, called “whistle stop tours,” where management would take analysts and investors around fields to explain the business of agricultural seed.

Those events were a good idea, because the ag-business isn’t easy to understand. It is weather driven, which makes it different than other chemical businesses that Wall Street analysts would compare Monsanto to—and will now compare Corteva to. What’s more, Monsanto had to explain genetic engineering to investors—how the company stacked multiple gene traits on one another to boost sales by saving farmers money.

Gene traits that are bred into products do things like make plants more resistant to pests, eliminating the need for some chemical applications. They also make plants more robust, better able to withstand drought.

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Since German pharmaceutical and chemical conglomerate Bayer (BAYN.Germany) bought Monsanto in 2018 there hasn’t been a large, stand-alone agricultural chemical company advocating for the industry with investors.

In Iowa, Corteva assumed the mantle of industry leader. Management went into detail about the sales, profit margins and the product pipeline. Corteva has 21,000 employees and holds 12,000 patents. It generates about $14.3 billion in sales and $2.7 billion in Ebitda (earnings before interest, taxes, depreciation and amortization). Ebitda isn’t expected to grow much in 2019 because of difficult conditions for farmers. Planting is late because of poorly timed Midwestern rains and crop prices are down year to date. Soybeans, for instance, have dropped 10% this year. Crop prices determine farm income and, in turn, Corteva sales.

Over time, Corteva targets sales growth of about 4%, compared with overall market growth of 3%. The company believes that level of sales growth will turn into 8% profit growth because of operating leverage. Corteva management also updated its debt projections and expects to carry “minimal long term financial debt.”

The update makes it possible to figure out where Corteva stock will trade. After all, what it’s worth is the question investors want answered.

Monsanto was purchased for 20 times Ebitda, which would make Corteva worth $56 billion, or 55% of DowDuPont’s total market value, including debt. Corteva shares probably won’t achieve that multiple. The M&A market for agricultural companies isn’t as hot as it once was. Other specialty chemical companies in the U.S. and Europe trade for about 12.5 times Ebitda, making Corteva worth $35 billion. That $21 billion spread in these two examples is a big gap. Based on history, agricultural franchises trade at a premium to the chemical space, so it is reasonable to assume that Corteva could be valued at up to $40 billion.

That’s about $50 to $55 a share and 20 to 25 times trailing earnings based on Barron’s math.

Corteva grows faster than the overall agricultural market because it invests in R&D, much like a pharmaceutical company. Management listed new seed traits as well as new insecticide, herbicide and fungicide products expected to be introduced over the next few years. Arylex, for instance, is a new herbicide with $50 million in sales. Corteva expects peak sales by 2023 of greater than $600 million.

Corteva is an interesting company and investors will be interested how it trades as a new company in a couple of weeks.

Write to Al Root at