|Shares Out. (in M):||2,350||P/E||21||18|
|Market Cap (in $M):||168,000||P/FCF||21||18|
|Net Debt (in $M):||22||EBIT||0||0|
DowDupont and its ensuing spinoff parade will provide the material for Chapter 3 of You Can Be A Stock Market Genius, 2nd Edition. The current risk / reward setup is asymmetric, at 15% downside (15x 2018 street earnings) and 85% upside (22x 2019 owner earnings). Looking forward from 2019, investors should begin to underwrite the then multiple public companies separately, leading to an even more favorable valuation. Given this dynamic and the low implied volatility being priced into DWDP options, I recommend buying the January 2020 $90 leaps for $2.50.
Following the recently completed all stock merger of Dow and Dupont that produced an underleveraged balance sheet, DWDP offers value hiding in plain sight with a sequence of pending catalysts over the next two years, including two or more spinoffs resulting in three (Agriculture; Materials Science; Specialty Products) or more (Specialty Products may create additional spinoffs itself) public equities that each may become M&A targets or acquirors. Largely forced and from a position of weakness, recent spinoffs and divestitures exiting Dow and Dupont while under prior managements have created immense value for their new shareholders: