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Does Billionaire Nelson Peltz See Something In E I Du Pont De Nemours And Co (DD)?

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The New York Times’s Andrew Ross Sorkin mentioned in an interview with billionaire Nelson Peltz of Trian Partners at the Delivering Alpha conference that Sorkin has sources indicating that Trian has been buying shares of E I Du Pont De Nemours And Co (NYSE:DD). Peltz refused to comment before the interview moved on to his plan to combine Mondelez International Inc (NASDAQ:MDLZ) and Kraft Foods Group Inc (NASDAQ:KRFT). DuPont’s stock popped on the news, and even after retreating a bit was still up about 5% on the day. According to our database of quarterly 13F filings, which we track as part of our work developing investment strategies (including our small cap strategy, which we have found outperforms the S&P 500 by an average of 18 percentage points per year), Peltz and his team had not owned any shares of E I Du Pont De Nemours And Co (NYSE:DD) as of the end of March (find Peltz’s favorite stocks from the filing).

Interest from other notable investors in E I Du Pont De Nemours And Co (NYSE:DD) was somewhat limited in the first quarter of 2013. Billionaire Steve Cohen’s SAC Capital Advisors increased its stake in the company to about 950,000 shares (see Cohen’s stock picks). The only other filer we track which owned more than $30 million worth of the stock at that time was Levin Capital Strategies, which is managed by John Levin (research more stocks Levin owned).

TRIAN PARTNERSE I Du Pont De Nemours And Co (NYSE:DD) is a diversified company, with business segments ranging from agricultural inputs to industrial chemicals and materials. Its reported revenue was up only slightly in the first quarter of 2013 versus a year earlier, and earnings from continuing operations were about flat as well. At its current price DuPont is valued at 13 times forward earnings estimates, which seems about right for a stagnant business. The company recently increased its quarterly dividend payment to 45 cents per share, making for a dividend yield of 3.3%.

The most obvious activist move that Peltz could be pushing for is a breakup of E I Du Pont De Nemours And Co (NYSE:DD). For example, the company’s Agriculture segment- which contributed 45% of revenue and 66% of segment operating income in Q1 2013- could be separated from the lower-margin, lower-growth remainder of the company. Both volume and price in agriculture have been growing, resulting in double-digit sales growth in Q1 relative to a year ago. If this unit were independently traded it might well be compared to Monsanto Company (NYSE:MON), whose trailing P/E is 22 even though its recent reports show little change in revenue or earnings compared to a year ago. The remainder of the company could focus on cash generation, with management potentially being able to improve the more industrial related operations. Of course, it’s also possible that this is merely a value related move and that Peltz believes the market does not fully appreciate the strength of the agricultural business or other E I Du Pont De Nemours And Co (NYSE:DD) assets; he could also want DuPont to engage in an acquisition strategy. In addition, any activist plans Trian may have would likely need to be accepted by management.

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