Activist Pressures Could Lead To A Break Up Of Dupont (DD)

Posted on January 9th, by Mitchell Warren in Free Articles, Options Risk Management, Trade Ideas. Comments Off on Activist Pressures Could Lead To A Break Up Of Dupont (DD)

Activist Pressures Could Lead To A Break Up Of Dupont (DD)

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Weekly Chart


Notes: Dupont (DD) has been under pressure from Trian Fund Management (Nelson Peltz) to break up the current business into three separate companies (agriculture, chemicals, industrials) to maximize shareholder returns. Trian owns roughly 2.7% of the float in Dupont, making it their 8th largest holding. Yesterday, Trian said they are seeking four board seats, one going to Nelson Peltz himself. This will likely come down to a shareholder in April and Calstrs (another notable shareholders) has supported what Trian is trying to accomplish.

Shares of Dupont current trade at a P/E ratio of 16.63x (2015 estimates) with 12.5% EPS growth, price to sales ratio of 1.91x, and a price to book ratio of 4.30x. Revenue is expected to top $37B this year, increasing by more than 4%. The solid top and bottom line growth combined with a 2.52% dividend yield are there to support the stock in the event of Trian’s activism failing later this year. Also, last year management announced a $5B share repurchase program and currently has about $3B left to buyback shares.

On January 8th, some large trader rolled out 28,496 (DD) Jan 23 weekly $72 calls ($3.40 credit) into 28,496 Jan 23 weekly $74.50 calls ($1.70 debit). He/she bought the $72 calls for $1.06 on January 6th, but still believes there is upside above $76.20 through January 23rd. Call activity was 8x the average daily volume on the 8th with 12 calls trading for every put traded. Keep in mind that these calls will expire before Q4 earnings on January 27th.

Dupont (DD) Options Trade Idea

Buy the (DD) Jan 23 weekly $74.50/$77 bull call spread for $1.00 debit or better

(Buy the Jan 23 weekly $74.50 call and sell the $77 call, all in one trade)

Stop loss- $0.45

1st upside target- $2.00

2nd upside target- $2.40

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