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Returns Are Gaining Momentum At Corteva (NYSE:CTVA)

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What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it’s a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Corteva (NYSE:CTVA) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those who don’t know, ROCE is a measure of a company’s yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Corteva, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)

0.074 = US$2.3b ÷ (US$41b – US$8.9b) (Based on the trailing twelve months to September 2022).

Thus, Corteva has an ROCE of 7.4%. In absolute terms, that’s a low return and it also under-performs the Chemicals industry average of 12%.

Check out our latest analysis for Corteva

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NYSE:CTVA Return on Capital Employed December 15th 2022

Above you can see how the current ROCE for Corteva compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’d like, you can check out the forecasts from the analysts covering Corteva here for free.

How Are Returns Trending?

Corteva’s ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 75% over the last four years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It’s worth looking deeper into this though because while it’s great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line

To sum it up, Corteva is collecting higher returns from the same amount of capital, and that’s impressive. And with the stock having performed exceptionally well over the last three years, these patterns are being accounted for by investors. In light of that, we think it’s worth looking further into this stock because if Corteva can keep these trends up, it could have a bright future ahead.

Before jumping to any conclusions though, we need to know what value we’re getting for the current share price. That’s where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

What are the risks and opportunities for Corteva?

Corteva, Inc. operates in the agriculture business.

View Full Analysis

Rewards

  • Trading at 33.1% below our estimate of its fair value

  • Earnings are forecast to grow 15.64% per year

Risks

No risks detected for CTVA from our risks checks.

View all Risks and Rewards

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.



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