This high-flying agriscience stock has room to run.
This agriscience company is recession resistant
Lee Samaha (Corteva): It’s not easy to find stocks that are up more than 22% in 2022 (not least because it implies a 45% outperformance over the S & P 500), but agriscience company Corteva is one of them. The reason for this is that the economy at large doesn’t determine Corteva’s end markets; they are driven by crop prices (high crop prices induce farmers to lay crops) and Corteva’s ability to sell its seeds and crop protection products.
The good news is, despite a correction over the summer, the price of key crops like wheat, corn, and soybeans remains higher than it was at the start of the year.
On top of the revenue growth opportunity, Corteva has a margin expansion opportunity through implementing a much-anticipated restructuring plan focused on reducing exposure to less attractive end markets and simplifying its organizational structure. In addition, Corteva is expanding sales of its seed and crop protection systems under its patents. As a result, management plans to reduce the royalties it pays other companies to license their technology. One such product is Corteva’s Enlist system which is now planted on 45% of U.S. soybean acres after being on the market for only three years.
It’s all expected to lead to earnings before interest, taxation, depreciation, and amortization (EBITDA) margin rising from 17.4% in 2022 to 21%-23% in 2025. Ultimately, a combination of recession-resistant growth and margin expansion prospects makes Corteva an attractive stock in the current environment.
