About Corteva
I’m originally from the Midwest, and I can assure you that it hardly ever gets its due in terms of just how important it is, particularly in the context of agriculture.
Take the great state of Indiana, for example.
Sure, many instantly view it as simply being the state south of Chicago, Illinois as well as being a corn-filled chunk of land just east of the center of the United States and being where the Colts and the Pacers play or a land in which a few industrial companies plant operations, perhaps spewing out a few other seemingly boring factoids that automatically give the state a bad rap.
However, say what you want about Indiana, but among other things, it is where Corteva is headquartered, specifically, in Indianapolis.
While that is all good and well, in the context of what we typically write about, it might actually help to learn a little more about what this company does.
Well, in relatively short form, Corteva is a very large agriculture company that specializes in chemicals and seeds that was spun off of DowDuPont back in 2019.
More specifically, Corteva generates the vast majority of its revenues through selling seeds and crop protection equipment to its core demographic, farmers, along with other clients that work in and around the agricultural arena.
From weed control to insect control to herbicides and fungicides and other types of seed treatments, this is a company that seemingly maintains a mission of helping farmers grow, which we would say is a fairly important mission given that farmers play an undeniably critical role in growing and producing the food we eat daily.
While this is a very important company, it is worth briefly noting that farming is a naturally cyclical occupation and industry as a whole, given that weather patterns and seasons alone are major external, uncontrollable factors and variables to the modern farmer, thus, it should be understood that demand for Corteva’s products can fluctuate with the seasons, as farmers in certain regions might be growing strong one season and hardly growing at all during another, leading to less (hopefully, temporarily) organic demand for the company’s products.
However, all things considered, given the scale and importance of Corteva, who it serves and what it does, demand for this company’s products over the span of years and not months is likely to remain steady, ceteris paribus.
With all of this preliminary information on the company, let’s take a walk through the company’s core financials and other relevant ratios and metrics so as to properly devise our opinion(s) regarding Corteva and its stock (NYSE: CTVA) as a long-term investment contender.
Corteva’s stock financials
Trading at a share price of $48.63 with an associated market capitalization of $34.52 billion, Corteva maintains a price-to-earnings (P/E) ratio of 31.21 as well as an annually issued dividend of $0.64 to its shareholders.
With that, it seems as though the company’s stock (NYSE: CTVA) is trading on the steeper end, as its prevailing price-to-earnings ratio is trading at about twelve points higher than that of the commonly held fair value benchmark of 20, indicating that this company’s stock is a bit overvalued at the moment, however, this is a problem that can potentially be remedied by some consistent, recent upward trend in revenues, however, our initial assumption is that this company’s revenues are relatively flat over a five-year span of time given how established and large it is in the agricultural sector.
One can only grow so much!
But who knows, we certainly wouldn’t mind being wrong in this context.
As it relates to the company’s balance sheet, Corteva’s executive team is in charge of taking care of and maintaining approximately $42.6 billion in terms of total assets as well as around $17.3 billion in terms of total liabilities, which, for a company as large and seasoned as this one, is a fantastic state, as it is seemingly more than well capitalized and certainly not going out of business anytime soon by reason of being financially overleveraged and it also apparently has the room to finance some current and/or future growth initiatives geared towards growing and expanding its current categories or perhaps chartering into new yet similar, agriculturally-focused arenas and lines of business.
Speaking of growth, as we initially anticipated, Corteva’s total annual revenues since 2018 have experienced some slight growth, but all things considered, sales have remained quite consistent for Corteva on a year-over-year (YOY) basis, as the company reported total annual revenues of $14.2 billion in 2018, $13.8 billion in 2019, $14.2 billion in 2020, $15.6 billion in 2021, leading all the way up to its latest reported figure of $17.4 billion, according to the figures displayed on TD Ameritrade’s platform.
For more reasons than one, the company’s revenues have been growing (hopefully like the crops it protects), perhaps one of the primary drivers being that commodity prices have been favorable from the perspective of farmers across the globe, thus incentivizing them to produce more, and, of course, subsequently needing more of Corteva’s specialized products to protect their crops.
If this is the case, this is certainly a positive for Corteva from a revenue generation perspective, however, what goes up must surely come back down and therefore we wouldn’t count on the company continuing to grow its revenues at this rate in the intermediate or long-term(s), again, given the cyclicality that lies within the vast agriculture industry.
This slight uptick in revenue could also simply be due to the company flexing some of its pricing power muscles and passing along some of its (added) costs to the consumer as well.
With respect to the company’s cash flow statement, Corteva’s net income and total cash from operations (also referencing since 2018) have seen their fair share of ups and downs, for instance, as the company’s net income in 2018 was reported as -$5 billion and -$941 million the following year, thankfully rising back to resoundingly positive levels, not to mention the fact that its total cash from operations between 2018 and 2022 have ranged between a relative low of $483 million (2018) to a high of $2.7 billion (2021), perhaps lending some insight into the fact of the matter being that Corteva’s costs can fluctuate a good deal from one year to the next, therefore, perhaps its input costs were on the higher end prior to the 2020s.
To us, this certainly isn’t make or break for a company such as Corteva, however, it is nevertheless something to consider and keep in the back of one’s mind as a potential investor moving forward.
Corteva’s stock fundamentals
As it pertains to this company and how it measures up with the competition on the basis of trailing twelve month (TTM) net profitability, Corteva is a leader and it shows, as, for example, the company’s listed TTM net profit margin (as displayed on TD Ameritrade’s platform) stands at 6.41% to the industry’s respective listed average of a much less impressive and comparably unassuming 1.76%, which very well might simply be a byproduct of being a leader in this agricultural segment and thus it has some very well earned pricing power with its suppliers, perhaps leading it to be good at keeping costs relatively low, thus the outsized TTM net profit margin.
Moving onto the company’s TTM returns on assets and investment(s), Corteva’s listed figures are in fine positions overall given the company’s size and scale.
Specifically, as also displayed on TD Ameritrade’s platform, Corteva’s TTM return on assets sit slightly below the industry’s respective average of 2.99%, with the company’s figure plotted at 2.64%, which isn’t certainly all that material of a difference, however, it is a difference nonetheless which we think could be heavily attributed to Corteva’s scale of operations, leading it to not naturally being able to produce outsized returns on this front as it simply takes more time for said assets to bear fruit as opposed to smaller operators, which tend to enjoy better comparable returns due to maintaining a smaller operational footprint.
This is understandable and we aren’t going to unreasonably nor incessantly hold it against Corteva.
Should you buy Corteva stock?
We have analyzed an agricultural giant in the past and I guess you could say we are just going back to our past ways.
By any measure, Corteva is a quintessential big, important company, as it helps food growers across the globe do what they do best and subsequently help us eat, which is sort of a big deal, you know, to stay alive.
Regardless of societal importance, however, Corteva’s stock (NYSE: CTVA) is not trading at a very favorable level given its prevailing price-to-earnings ratio trading well above the standard, commonly held fair value benchmark and even with all of the other redeeming qualities interwoven throughout this company’s financials such as its markedly total asset-heavy balance sheet, its stable-to-growing revenues (since 2018), its TTM net profit margin, among other factors, we still don’t deem this company worthy of a premium valuation and until it comes down to more favorable levels, and thus it seems to make the most sense to offer this company’s stock a “sell” rating for the time being.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.