Dow Inc. ( DOW Quick Quote DOW - Free Report) is expected to gain from cost and productivity actions and investment in high-return projects. However, it faces headwinds from soft demand due to weak global economic activities. The company’s shares are up 0.5% over a year, compared with a 14.9% decline recorded by its industry. Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
Image Source: Zacks Investment Research Cost and Growth Actions Aid DOW
Dow 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.
The company is also implementing targeted actions focused on optimizing labor and purchased service costs, lowering turnaround spending and boosting productivity. Dow expects these initiatives to deliver $1 billion in cost savings in 2023. Moreover, DOW 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. Dow’s disciplined and balanced capital allocation priorities are also supporting its Decarbonize and Grow strategy to deliver long-term value creation for its shareholders. The company expects its Decarbonize and Grow and Transform the Waste strategies to generate more than $3 billion in underlying earnings annually. The company’s board has given the green light for its Fort Saskatchewan Path2Zero initiative, marking a significant milestone in its commitment to building the world's inaugural net-zero Scope 1 and 2 emissions-integrated ethylene cracker and derivatives facility in Alberta, Canada. The $6.5-billion project, excluding government incentives and subsidies, involves the construction of a new ethylene cracker, a 2-million MTA polyethylene capacity expansion and retrofitting the existing cracker to achieve net-zero Scope 1 and 2 emissions. It is expected to generate $1 billion in EBITDA growth annually throughout the economic cycle and decarbonize 20% of Dow's global ethylene capacity. The investment positions Dow to meet increasing demand in lucrative markets such as packaging, infrastructure and hygiene, with additional potential gains from the commercialization of low and zero-emission products. Moreover, the company is committed to return value to its shareholders by leveraging healthy cash flows. It returned $617 million to shareholders in the third quarter of 2023 through dividends and share buybacks. It has already returned around $2 billion to shareholders this year. Dow has adequate liquidity of roughly $13 billion and no substantial debt maturities until 2027. Weak Demand Ails
The company faces challenges from demand softness in Europe and Asia Pacific. Lower consumer spending amid inflationary pressures is affecting demand in Europe. Global industrial activities have been affected by the weaker demand recovery in China. In the Performance Materials & Coatings segment, the company is seeing weaker demand in consumer electronics and industrial end markets.
Inflationary pressures are also impacting consumer durables and building and construction demand in Europe, affecting the Industrial Intermediates & Infrastructure segment. Weak conditions across these markets are likely hurt volumes in fourth-quarter 2023. The challenging macroeconomic environment is expected to continue in the fourth quarter. Dow also faces headwinds from plant turnaround costs and outages in the fourth quarter. It sees planned maintenance turnaround activities at its joint venture in Thailand to hurt earnings in the Packaging & Specialty Plastics segment in the quarter. Dow expects an associated headwind of roughly $50 million in the fourth quarter. The company also faced headwinds, in the third quarter, associated with an outage at its Plaquemine glycol plant in Louisiana. The ongoing outages at Louisiana are expected to impact its Industrial Intermediates & Infrastructure unit in the fourth quarter.
Stocks to Consider
Better-ranked stocks worth a look in the basic materials space include
Denison Mines Corp. ( DNN Quick Quote DNN - Free Report) , Axalta Coating Systems Ltd. ( AXTA Quick Quote AXTA - Free Report) and The Andersons Inc. ( ANDE Quick Quote ANDE - Free Report) . Denison Mines has a projected earnings growth rate of 100% for the current year. DNN has a trailing four-quarter earnings surprise of roughly 225%, on average. The stock is up around 46% in a year. It currently carries a Zacks Rank #1 (Strong Buy). You can see . the complete list of today’s Zacks #1 Rank stocks here In the past 60 days, the Zacks Consensus Estimate for Axalta Coating Systems’ current year has been revised upward by 8.2%. AXTA, carrying a Zacks Rank #1, beat the Zacks Consensus Estimate in three of the last four quarters while missing in one quarter, with the average earnings surprise being 6.7%. The company’s shares have gained 16% in the past year. Andersons currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for ANDE's current-year earnings has been revised 5.1% upward over the past 60 days. Andersons beat the Zacks Consensus Estimate in three of the last four quarters. It delivered a trailing four-quarter earnings surprise of 32.8%, on average. ANDE shares have rallied around 33% in a year.