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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 benefiting from cost synergy savings and productivity initiatives, strong 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 19.3% over a year, compared with a 14.6% decline recorded by its industry.

 

Zacks Investment Research
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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, electronics and construction amid the ongoing economic recovery. It is also benefiting from strong demand for its materials across healthcare and packaging markets, thanks to the coronavirus pandemic. The pandemic has led to a surge in demand for health, hygiene and safety products.

Dow, in its first-quarter call, said that it expects demand strength across its end markets to continue. It sees strong demand across both consumer and industrial end markets in the second quarter of 2022. The company is well-placed to achieve mid-cycle earnings above pre-pandemic levels as it captures higher demand for lower carbon and circular solutions, it noted.

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 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.

The company is also committed to return value to its shareholders by leveraging healthy cash flows. It generated cash flow from operating activities of $1.6 billion and returned $1.1 billion to shareholders in the first quarter of 2022 through dividends and share repurchases. The company also announced a new $3 billion share buyback program.

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 second 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. Dow also sees an unfavorable impact in the Industrial Intermediates & Infrastructure unit in the second quarter due to raw material inflation in Europe.

Dow also faces headwinds from higher energy costs. It expects higher energy costs in the second quarter, especially in Europe, which has witnessed a significant spike in costs. The company sees headwinds in the Industrial Intermediates & Infrastructure segment in the second quarter stemming from higher energy costs in Europe.

Turnaround costs are also expected to affect the company’s results. It expects a roughly $125 million headwind in the Packaging & Specialty Plastics segment in the second quarter associated with a turnaround at its cracker and aromatics facilities in Louisiana. Dow also expects around $100 million headwind in the quarter related to turnarounds at its Stade and Terneuzen alkoxylate facilities.

 

Dow Inc. Price and Consensus

 

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 Nutrien Ltd. (NTR - Free Report) , Albemarle Corporation (ALB - Free Report) and Cabot Corporation (CBT - Free Report) .

Nutrien, sporting a Zacks Rank #1 (Strong Buy), has an expected earnings growth rate of 174.6% for the current year. The Zacks Consensus Estimate for NTR's current-year earnings has been revised 22.9% upward over the last 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nutrien beat the Zacks Consensus Estimate for earnings in three of the last four quarters while missed once. It has a trailing four-quarter earnings surprise of roughly 5.8%, on average. NTR has gained roughly 29% in a year.

Albemarle has a projected earnings growth rate of 231.7% for the current year. The Zacks Consensus Estimate for ALB’s current-year earnings has been revised 116.1% upward in the past 60 days.

Albemarle’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 22.5%. ALB has rallied roughly 28% in a year. The company flaunts a Zacks Rank #1.

Cabot, currently carrying a Zacks Rank #1, has an expected earnings growth rate of 22.5% for the current fiscal year. The Zacks Consensus Estimate for CBT's earnings for the current fiscal has been revised 6% upward in the past 60 days.

Cabot’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 16.2%. CBT has gained around 7% over a year.


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