Cost Savings And New Products Will Advance Agriculture In 2025

Key Takeaways

• Corteva anticipates double-digit earnings growth in 2025 via cost savings, innovation, and operational excellence, improving margins.
  
• The rollout of new seed technologies and product introductions in Crop Protection is expected to drive growth despite pricing pressures.
  
• Reliance on volatile markets and competitive pressures in crop protection may hinder revenue and earnings growth due to weather, political, and currency challenges.

Catalysts

Operates in the agriculture business.

• Corteva expects to return to double-digit earnings growth in 2025, driven by controllable factors such as cost savings, operational excellence, and investment in innovation, which are anticipated to enhance earnings and margins.
  
• The Seed business is positioned for continued growth, with new technologies and hybrids slated for rollout in 2025, which is expected to drive revenue by increasing yield and productivity for farmers.
  
• Corteva anticipates significant benefits from raw material deflation in both Seed and Crop Protection in 2025, alongside ongoing productivity actions, contributing to improved net margins.
  
• The Crop Protection business is expected to grow in 2025 through the introduction of new products, including biologicals, despite anticipated pricing pressures, which should support both revenue and earnings growth.
  
• The strategic shift towards royalty neutrality and increased licensing income, particularly in corn and soybean traits, is projected to improve margins and contribute to bottom-line growth by 2025.

Corteva Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Corteva's revenue will grow by 3.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.0% today to 12.2% in 3 years time.
• Analysts expect earnings to reach $2.2 billion (and earnings per share of $3.41) by about December 2027, up from $670.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $1.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.6x on those 2027 earnings, down from 60.1x today. This future PE is greater than the current PE for the US Chemicals industry at 21.5x.
• Analysts expect the number of shares outstanding to decline by 1.44% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.73%, as per the Simply Wall St company report.

Corteva Future Earnings Per Share Growth

Risks

• Corteva's reliance on markets like Brazil and Argentina introduces significant risks due to variable weather patterns and political and economic instability, which could negatively affect revenue and earnings.
  
• The seed business, while performing well, faces challenges such as reduced planted area in critical regions like Argentina, affecting overall volume and potentially impacting revenue.
  
• Competitive pressures in the crop protection industry, especially in Latin America, result in pricing challenges, potentially reducing net margins and impacting earnings.
  
• The company is experiencing significant currency headwinds from the Brazilian real and Turkish lira, which could undermine revenue and earnings.
  
• There is a risk of inability to realize forecasted cost improvements or manage controllables effectively, which could prevent the anticipated expansion in net margins and earnings.

Valuation

• The analysts have a consensus price target of $66.27 for Corteva based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $74.0, and the most bearish reporting a price target of just $57.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $18.4 billion, earnings will come to $2.2 billion, and it would be trading on a PE ratio of 23.6x, assuming you use a discount rate of 6.7%.
• Given the current share price of $58.57, the analyst's price target of $66.27 is 11.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.