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Here's Why You Should Hold Onto Dow (DOW) Stock for Now
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Dow Inc. (DOW - Free Report) is expected to benefit from cost synergy savings and productivity initiatives, firm demand across a number of major markets and investment in high-return projects amid headwinds from higher raw material and energy costs.
The company’s shares are down 4.3% over a year, compared with a 1.3% decline recorded by its industry.
Image Source: Zacks Investment Research
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Favoring DOW?
Dow is seeing higher demand across a number of markets including personal care and mobility. It is also benefiting from healthy demand in consumables and food packaging markets. The company saw strong demand for pharmaceutical, agricultural and energy applications in the third quarter of 2022. The momentum across these markers is likely to continue in the fourth quarter.
The company should also gain from cost synergy savings and productivity actions. It focuses on maintaining cost and operational discipline. The company is realizing a full $300 million EBITDA run rate benefit from restructuring programs being initiated in the third quarter of 2020. Dow also expects its investment in digital initiatives to drive efficiency and allow it to realize $300 million EBITDA run rate by 2025.
Dow also remains focused on investing in attractive areas through highly accretive projects. It is investing in several high-return growth projects including the expansion of downstream silicones capacity. The company completed its Fort Saskatchewan expansion in 2021, which is expected to support higher polyethylene demand. Its fluidized catalytic dehydrogenation pilot plant in Louisiana is also expected to start up in fourth-quarter 2022 to manufacture propylene for coatings, electronics and durables markets. Moreover, Dow has already completed 13 downstream silicones debottlenecking projects this year.
The company is also committed to return value to its shareholders by leveraging healthy cash flows. It generated cash flow from operating activities of $1.9 billion and returned $1.3 billion to shareholders in the third quarter of 2022 through dividends and share repurchases.
A Few Headwinds
The company is exposed to challenges from higher raw material costs. Raw material and logistical constraints are likely to persist in the fourth quarter. The company’s Packaging & Specialty Plastics segment faces headwinds from higher raw material costs and logistical challenges. This is expected to affect results in this segment. The Industrial Intermediates & Infrastructure unit also faces challenges from raw material inflation in Europe.
Dow is also exposed to headwinds from higher energy costs. It faced higher energy costs in the third quarter, especially in Europe, which has witnessed a significant spike in costs. The company’s Industrial Intermediates & Infrastructure segment is expected to continue to face cost headwinds in the fourth quarter stemming from higher energy costs in Europe. Packaging & Specialty Plastics and Performance Materials & Coatings units are also expected to face challenges from a rise in energy costs in the quarter. As such, margins in these segments are likely to be hurt in the fourth quarter.
The company also faces headwinds from weaker demand in Europe. The energy and feedstock inflation has resulted in reduced industrial production and consumer spending. The company expects global energy markets to remain volatile in the fourth quarter. It also sees lower consumer spending in Europe in the quarter. Inflationary pressures are also expected to impact consumer durables and building and construction demand in Europe in the fourth quarter, affecting the Industrial Intermediates & Infrastructure segment.
Better-ranked stocks worth considering in the basic materials space include Olympic Steel, Inc. (ZEUS - Free Report) , Commercial Metals Company (CMC - Free Report) and Steel Dynamics, Inc. (STLD - Free Report) .
Olympic Steel currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for ZEUS's current-year earnings has been revised 4.8% upward in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Olympic Steel’s earnings beat the Zacks Consensus Estimate in three of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 25.4%, on average. ZEUS has rallied around 51% in a year.
Commercial Metals currently carries a Zacks Rank #1. The consensus estimate for CMC's current-year earnings has been revised 13.8% upward in the past 60 days.
Commercial Metals’ earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 19.7%, on average. CMC has gained around 49% in a year.
Steel Dynamics has a projected earnings growth rate of 36.1% for the current year. The Zacks Consensus Estimate for STLD’s current-year earnings has been revised 7.3% upward in the past 60 days.
Steel Dynamics has a trailing four-quarter earnings surprise of roughly 6.2%. STLD has rallied roughly 80% in a year. The company currently carries a Zacks Rank #2 (Buy).
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Here's Why You Should Hold Onto Dow (DOW) Stock for Now
Dow Inc. (DOW - Free Report) is expected to benefit from cost synergy savings and productivity initiatives, firm demand across a number of major markets and investment in high-return projects amid headwinds from higher raw material and energy costs.
The company’s shares are down 4.3% over a year, compared with a 1.3% decline recorded by its industry.
Image Source: Zacks Investment Research
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Favoring DOW?
Dow is seeing higher demand across a number of markets including personal care and mobility. It is also benefiting from healthy demand in consumables and food packaging markets. The company saw strong demand for pharmaceutical, agricultural and energy applications in the third quarter of 2022. The momentum across these markers is likely to continue in the fourth quarter.
The company should also gain from cost synergy savings and productivity actions. It focuses on maintaining cost and operational discipline. The company is realizing a full $300 million EBITDA run rate benefit from restructuring programs being initiated in the third quarter of 2020. Dow also expects its investment in digital initiatives to drive efficiency and allow it to realize $300 million EBITDA run rate by 2025.
Dow also remains focused on investing in attractive areas through highly accretive projects. It is investing in several high-return growth projects including the expansion of downstream silicones capacity. The company completed its Fort Saskatchewan expansion in 2021, which is expected to support higher polyethylene demand. Its fluidized catalytic dehydrogenation pilot plant in Louisiana is also expected to start up in fourth-quarter 2022 to manufacture propylene for coatings, electronics and durables markets. Moreover, Dow has already completed 13 downstream silicones debottlenecking projects this year.
The company is also committed to return value to its shareholders by leveraging healthy cash flows. It generated cash flow from operating activities of $1.9 billion and returned $1.3 billion to shareholders in the third quarter of 2022 through dividends and share repurchases.
A Few Headwinds
The company is exposed to challenges from higher raw material costs. Raw material and logistical constraints are likely to persist in the fourth quarter. The company’s Packaging & Specialty Plastics segment faces headwinds from higher raw material costs and logistical challenges. This is expected to affect results in this segment. The Industrial Intermediates & Infrastructure unit also faces challenges from raw material inflation in Europe.
Dow is also exposed to headwinds from higher energy costs. It faced higher energy costs in the third quarter, especially in Europe, which has witnessed a significant spike in costs. The company’s Industrial Intermediates & Infrastructure segment is expected to continue to face cost headwinds in the fourth quarter stemming from higher energy costs in Europe. Packaging & Specialty Plastics and Performance Materials & Coatings units are also expected to face challenges from a rise in energy costs in the quarter. As such, margins in these segments are likely to be hurt in the fourth quarter.
The company also faces headwinds from weaker demand in Europe. The energy and feedstock inflation has resulted in reduced industrial production and consumer spending. The company expects global energy markets to remain volatile in the fourth quarter. It also sees lower consumer spending in Europe in the quarter. Inflationary pressures are also expected to impact consumer durables and building and construction demand in Europe in the fourth quarter, affecting the Industrial Intermediates & Infrastructure segment.
Dow Inc. Price and Consensus
Dow Inc. price-consensus-chart | Dow Inc. Quote
Stocks to Consider
Better-ranked stocks worth considering in the basic materials space include Olympic Steel, Inc. (ZEUS - Free Report) , Commercial Metals Company (CMC - Free Report) and Steel Dynamics, Inc. (STLD - Free Report) .
Olympic Steel currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for ZEUS's current-year earnings has been revised 4.8% upward in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Olympic Steel’s earnings beat the Zacks Consensus Estimate in three of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 25.4%, on average. ZEUS has rallied around 51% in a year.
Commercial Metals currently carries a Zacks Rank #1. The consensus estimate for CMC's current-year earnings has been revised 13.8% upward in the past 60 days.
Commercial Metals’ earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 19.7%, on average. CMC has gained around 49% in a year.
Steel Dynamics has a projected earnings growth rate of 36.1% for the current year. The Zacks Consensus Estimate for STLD’s current-year earnings has been revised 7.3% upward in the past 60 days.
Steel Dynamics has a trailing four-quarter earnings surprise of roughly 6.2%. STLD has rallied roughly 80% in a year. The company currently carries a Zacks Rank #2 (Buy).