2023-03-27 13:50:03 ET
Summary
- The need to secure stable sources of food is vital for our society and with the product that Corteva provides they will be able to aid in that mission, whilst.
- Due to the increasing demand for environmentally friendly products and policies, Corteva is poised to benefit from a growing market.
- I think the company looks very attractive right now and with such a steadily growing market and competent management, I will rate the company a buy.
Investment Summary
In summary, Corteva, Inc. (CTVA) is a leading global agricultural chemical and seed company that has shown consistent financial performance and growth potential. With a forward price-to-earnings ratio of 20.17 and a dividend yield of 1.04% I believe Corteva's valuation appears reasonable and attractive to investors.
The company will be able to grow at a steady rate as the need to set up and maintain steady supplies of food gets more and more important each day. The product that Corteva, Inc. makes greatly helps with this.
Overall, I think Corteva appears to be a good investment opportunity due to its solid financial performance, reasonable valuation, and growth prospects in the agricultural industry.
Market Tailwinds
The fertilizer market has seen significant growth over the past few years, with increasing demand from the agriculture industry. According to a report by Mordor Intelligence , the global fertilizer market is expected to grow at a compound annual growth rate CAGR of 5.83% from 2023 to 2028.
One of the major tailwinds for the fertilizer market is the increasing demand for food due to a growing global population. This has led to an increase in demand for crops, which in turn has driven demand for fertilizers. Additionally, the growing trend towards sustainable and organic agriculture practices has boosted the demand for organic fertilizers, which are made from natural sources.
Market Growth (Mordor Intelligence)
The seed market and crop protection market are also closely linked to the fertilizer market, as they all contribute to the growth and health of crops. The seed market, which includes both conventional and genetically modified seeds is expected to continue growing at steady rates. Besides a growing population and the need for secure new stable sources of food, the war in Ukraine left a hole in the global market as grain and corn supply decreased drastically. This increased the need for fertilizers greatly as new areas needed to be cultivated and ready as soon as possible.
Catalyst
One potential catalyst for Corteva, Inc. is the increasing demand for sustainable agricultural solutions. With concerns about climate change and environmental impact on the rise, there is a growing need for companies that can provide innovative and eco-friendly solutions to help feed the world's growing population.
Corteva's focus on developing sustainable agriculture technology positions it well to benefit from this trend. As the world population continues to grow, there will be a need for more efficient and effective ways to produce food, and companies that can offer sustainable solutions will be in high demand.
Furthermore, the company's recent acquisition of Stoller and Symborg demonstrates its commitment to investing in innovative solutions and expanding its portfolio. These acquisitions are expected to enhance the company's offering in seed treatment and plant growth-promoting rhizobacteria (PGPR) technology, providing farmers with more sustainable solutions that can help increase crop yields while reducing environmental impact.
Quarterly Result
Corteva's Q4 results for 2022 showcase impressive gains in net sales, with an 11% increase compared to the previous year. The seed net sales grew 7%, and the organic sales increased by 9%, with notable gains in Latin American corn and North American soybeans. However, the reduction of corn acres and canola volumes in North America resulted in a partial offset. On the other hand, Crop Protection net sales grew by 17%, and organic sales increased by 20%, with broad-based gains across all regions.
Despite unprecedented cost inflation and supply chain challenges, the company reported double-digit Operating EBITDA growth and over 200 basis points of EBITDA margin expansion. The management attributed the success to the innovative portfolio, strong market positions, and disciplined execution. Corteva has also provided full-year 2023 guidance, expecting net sales to be in the range of $18.1 billion to $18.4 billion, with operating EBITDA expected to be in the range of $3.4 billion to $3.6 billion. Operating EPS is expected to be in the range of $2.70 to $2.90 per share.
2022 Highlights (Q4 Earnings Report)
The management is optimistic about the future of the agricultural market, with farm income levels remaining strong, leading farmers to invest in technologies that increase productivity and yield. I think this argument is sound and a greater need for better agricultural solutions is necessary I think Corteva, Inc. will have an important role to play in that. I think the company has proven its commitment to driving sustainable growth through its robust pipeline and investing in the aspiration to become the leading global integrated agriculture technology solutions company. The market is there and I think Corteva, Inc. is ready to be a larger competitor in it.
Overall, Corteva's quarterly results are impressive, with notable gains in both the seed and crop protection markets. The management's commitment to driving sustainable growth and investing in innovative technology solutions bodes well for the company's future success.
Investment Risks
The company is exposed to risks related to commodity prices and supply chain disruptions. Changes in input costs, such as the prices of key raw materials used in the production of its products, could impact the company's margins and profitability.
Moreover, Corteva operates in a highly competitive industry , facing intense competition from established players and new entrants. This competition could lead to pricing pressure and reduced market share for the company.
Finally, as with any company, Corteva is exposed to general economic risks, such as changes in global economic conditions, foreign exchange rates, and interest rates. These factors could impact the company's financial performance and growth prospects.
Company Financials
Corteva's balance sheet at the end of December 2022 showed a healthy financial position with total assets of $42.6 billion, an increase of $0.3 billion from the prior year. Notably, the company's cash and cash equivalents decreased by $1.3 billion, or 29%, to $3.2 billion at the end of 2022, as compared to $4.5 billion in 2021. The reduction in cash is a cause for concern as it may limit the company's ability to invest in research and development or pursue strategic acquisitions. However, it's worth noting that the company's investments in non-consolidated affiliates increased from $76 million to $102 million, which may provide some comfort to investors.
Company Assets (Q4 Earnings Report)
Another positive sign is the decrease in the company's long-term debt from $1.1 billion in 2021 to $1.0 billion in 2022. The reduction in long-term debt reflects the company's focus on optimizing its capital structure, reducing interest expenses, and improving its overall financial flexibility.
Company Liabilities (Q4 Earnings Report)
Corteva's total equity remained stable at $25.5 billion at the end of 2022, as compared to $25.6 billion in 2021. However, there were some significant shifts within equity. The company's accumulated other comprehensive income (loss) improved slightly, with a loss of $2.8 billion in 2022 compared to a loss of $2.9 billion in 2021. Additionally, the company's retained earnings decreased by $0.3 billion from $0.5 billion in 2021 to $0.2 billion in 2022.
Overall, Corteva's balance sheet appears to be in decent shape. The company has been able to decrease its long-term debt, which should make them a little more flexible. But the only worrying concern for me is the reduction of the cash position. I would have preferred seeing them have it stay more or less the same, but as they acquired a new company that obviously couldn't be done. Nonetheless, the company is still generating good amounts of free cash flows, so I am not too worried.
Valuing & Wrapping Up
Corteva, Inc. is a leading player in the agricultural industry, providing farmers with innovative solutions to increase productivity and profitability while protecting the environment. Looking at the key metrics, we can see that the company is trading at a forward P/E ratio of 19, which is slightly above the industry average of 17.44. With estimates of the company growing its EPS by more than 15% each year, the higher valuation seems very justified.
Looking deeper at the valuations there are other numbers I think to make, the company a relatively low price/book value of just 1.54. With still strong cashflows I expect the company to use some of that to pay down debt which would bring down the p/b even more and in my opinion the current prices look like a steal. Bolstering the argument the company will be able to continue generating strong cash flows, the already sector-beating gross margin of over 40% paired with a strongly increased demand makes me think there are little risk margins be reduced, instead I think they will do the opposite.
Furthermore, the company has a relatively low dividend yield of 1.04%, which is not surprising given the industry's capital-intensive nature. However, it is worth noting that the company has consistently increased its dividend payout over the years, and with a low payout ratio, there is plenty of room for further increases in the future.
In conclusion, while Corteva may be trading at a premium to some of its peers, it is still reasonably priced given its growth prospects and relatively low dividend payout ratio. With a solid track record of increasing dividends, the company is an attractive buy for long-term investors who are looking to add a reliable agricultural stock to their portfolio. Additionally, with the increasing global demand for food, Corteva is well-positioned to capitalize on this tailwind and continue to drive growth in the future.
For further details see:
Corteva, Inc.: An Investment For The Future