A Wide-Moat Stock to Buy That’s Flying Under the Radar—for Now

Undervalued stock Corteva isn’t a household name. Spun out from DowDuPont in 2019, the company is a global leader in the premium seed market. In fact, we think Corteva has built a wide economic moat thanks to its portfolio of patented biotech seeds and crop chemicals. We expect growing seed profits and a recovery in crop protection to be catalysts for the stock in 2025. Corteva appears on Morningstar analysts’ list of 33 Undervalued Stocks to Buy for 2025 and is also among Morningstar chief US market strategist Dave Sekera’s 5 Stocks to Buy During Q1 2025.

Corteva holds a solid portfolio of proprietary genetically modified organism and hybrid seeds. GMO seeds make crops resistant to damaging insects while also allowing farmers to spray more-effective crop chemicals to control weeds. Anti-GMO consumer sentiment may limit Corteva’s growth in developed markets such as Europe, but the need to improve crop yields globally should lead to eventual GMO adoption in emerging markets, where we see long-term growth potential. In Corteva’s crop protection segment, we expect increased demand for herbicides, which complement GMO seeds, as demand for insecticides drops over the long term. However, Corteva’s new insecticides will use new modes of action, such as environmentally friendly biologicals, to target resistant bugs; the company aims for biologicals to generate 25% of crop protection sales by 2035.

Key Morningstar Metrics for Corteva

• Fair Value Estimate: $70
• Star Rating: 4 Stars
• Economic Moat Rating: Wide
• Uncertainty Rating: Medium

Economic Moat Rating

We award Corteva a wide economic moat rating on the basis of its portfolio of patented biotech seeds and crop chemicals. These patented products command pricing power as they protect farmer yields and reduce other expenses such as insecticides. Corteva’s intangible assets stem from the research and development required for the continual development of proprietary seed and crop chemical formulations. As patents expire and crop pests develop resistance to current products, seeds with new traits and chemical formulations must be developed. As a result, moaty businesses in this space must continue to invest in R&D. Corteva invests roughly 8% of sales in new product development each year, in line with peers. This gives us confidence that it is investing enough to continue to develop new products. Seeds generate the majority of profits, and we are confident this business will generate excess returns on invested capital for at least the next 20 years.

Read more about Corteva’s moat rating.

Fair Value Estimate for Corteva Stock

Our fair value estimate is $70 per share. Our weighted average cost of capital is 8.2%, and our stage two EBI growth rate is 4.5%, which reflects Corteva’s pricing power. We forecast profit growth for the seeds business, as Corteva benefits from new product launches and reduced net royalty payments. We forecast crop protection will return to growth in 2025. Long term, we forecast mid-single-digit average annual sales growth as the firm successfully develops new seed and crop chemical technologies. As Corteva sells a greater proportion of patented and differentiated crop protection products and seeds, we expect companywide EBITDA margin to expand from just under 20% in 2023 to nearly 24% by 2028. Our base case assumes that Corteva pays a total of $640 million in PFAS-related litigation and cleanup expenses, which is the maximum liability under the agreement with DuPont and Chemours.

Read more about Corteva’s fair value estimate.

Risk and Uncertainty

Corteva must constantly innovate as patents expire or competitors develop new products. Weeds, insects, and fungi could develop resistance to seed traits or crop chemical formulations, rendering Corteva’s technology ineffective. In any year, demand for seeds and crop chemicals is tied to unpredictable factors, including weather and crop prices. Corteva also faces risk from PFAS-related environmental cleanup obligations and litigation, as well as the ultimate size of the liabilities, which could take decades to resolve. In addition, products may be banned due to environmental concerns.

Read more about Corteva’s risk and uncertainty.

Corteva Bulls Say

• Corteva’s profits should see a boost now that the $1 billion annual royalty payment to Bayer has expired.
• Corteva’s genetically modified Enlist platform has had wins over Bayer in recent years in gaining approval for its GMO seeds to be imported into China, which should boost its market share.
• A strong pipeline of patented crop protection chemicals will drive profits and margins higher as the company expands its proportion of sales from those products.

Corteva Bears Say

• Negative sentiment around genetically modified seeds could diminish Corteva’s ability to penetrate new markets.
• Corteva’s new crop protection products will face increased competition from other premium producers, limiting the profit growth opportunity.
• Corteva’s genetically modified seeds might not see long-term success against competitors. As a result, Corteva will need to continue to license Bayer’s seed technology even after its royalty agreement expired in 2023.

This article was compiled by Susan Dziubinski and Sylvia Hauser. Data as of Jan. 15, 2025.