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Yola Edwards

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A corporate change in climate

Yola Edwards

 

Global warming has now largely been adopted by the public as a reality and reducing carbon dioxide emissions, the principal greenhouse gas culprit, has also been on the minds and agendas of big business for quite some time. It’s not only politically correct and environmentally responsible, but companies find that taking action to combat climate change can significantly impact the bottom line.

Both public opinion and corporate leaders are running well ahead of governments on the issue. In Ottawa, the Harper Administration has only recently decided to make climate change a priority issue, no doubt influenced by the election of Stéphane Dion to head the Liberals. The United States still isn’t officially on board with the Kyoto Protocol as President Bush hasn’t signed the agreement, which came into effect on Feb. 16, 2005. His advisers maintain that reducing emissions through costly near-term measures is unjustified and that “forecasting climate change is too imprecise to agree to long-term, international, mandatory cuts in greenhouse gas emissions.”

In his recent State of the Union message, Mr. Bush appeared to be moving off that position, if somewhat tentatively. But many U.S. companies are already well ahead of the White House on this. One example of a publicly-traded company that’s actively engaged in reducing greenhouse gas emissions, and has called on the federal government to get on board, is EI DuPont De Nemours & Co.

A pioneer in embracing its social responsibilities, DuPont clearly exemplifies the fact that environmentally-friendly alternatives have their benefits for global preservation and contribute to a company’s bottom line. In the mid-1980s, DuPont studied data which indicated that chlorofluorocarbon (CFC) refrigerants were destroying the Earth’s protective ozone layer and company officials proceeded to create successful businesses by selling substitutes. DuPont chairman and CEO Charles O. “Chad” Holliday Jr. stated at the time: “We came to the conclusion that the science was compelling and that action should be taken.”

In 1994, company officials committed to cutting gas emissions by 40% by the year 2000 from its 1990 levels. Meeting its 2000 target, DuPont went on to set a 65% reduction goal by 2010, but has already met that target and now uses 7% less energy than in 1990 despite producing 30% more goods. DuPont has reduced greenhouse gas emissions by more than 70% since 1991, while realizing more than $3 billion through energy conservation.

Additionally, DuPont has for the most part replaced natural gas with methane from landfills in its industrial boilers. The company is also involved in a biomass program to produce a chemical from corn called Bio-PDO which, to quote a press release, “can be used in a variety of applications, either by itself or as an ingredient in the production of materials that have traditionally been based on petroleum feedstocks…The production of Bio-PDO consumes 40% less energy and reduces greenhouse gas emissions by 20% versus petroleum based PDO.” The resulting emission reductions can be viewed as the equivalent of removing 22,000 cars from the road. DuPont is also working with BP PLC to develop other forms of biofuel.

In a further effort to reach its goal of generating 10% of its total energy needs from renewable resources by 2010, DuPont Canada installed a meteorological tower at its Kingston, Ontario facility in November 2003 to assess the benefits of using turbines as a renewable energy source.

Analysts say that the solar energy market is growing by about 30% per year and DuPont is there, supplying the industry with eight out of ten primary materials needed to manufacture photovoltaics modules which convert sunlight to electricity.

The list goes on. DuPont’s productivity improvements across the company continue to add to the bottom line. Company officials announced recently that 2006 earnings grew 23% to $2.88 per share from the prior year and they expect 2007 earnings growth to continue with an earnings outlook of $3.15 per share (figures in U.S. dollars). The stock currently trades at a 17.7 price-to-earnings (P/E) multiple and its $1.48 annual dividend yields 2.9% per share at current levels.

Technically, over the past six years the stock has been range-bound with an average price of about $45 with $5 - $6 spikes on either side of that level. However, the consolidation may be nearing an end. Since September 2006, the stock’s monthly chart indicates higher highs and higher lows, with progressively higher monthly closes. The momentum indicators do suggest the stock is at overbought levels. The stock is trading up against the upper overbought Bollinger band and the daily moving average convergence/divergence oscillator (MACD) is issuing a negative divergence, thus a pullback to the 41-day moving average at about $49.40 may be in order.

Any pullbacks should be viewed as a buying opportunity as the monthly MACD indicates a recent buy signal. Since March 2005, the stock has been forming a saucer bottom and a monthly close above $54 would indicate an upside breakout. Once the breakout occurs the pattern’s technical measurement suggests a potential target of about $69.50 over the ensuing year.

DuPont operates in more than 70 countries, offering a wide range of innovative products and services for markets that include agriculture and food, building and construction, communications, and transportation. The stock trades on the NYSE under the symbol DD and closed on Friday at $52.47. DuPont is one of the components of the closely-watched Dow Jones Industrial Average.

Yola Edwards is a contributing writer and technical analyst for Bell Globemedia Interactive, providing options and technical analysis research on a variety of North American equities.

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