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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 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 14.7% over a year, compared with a 1.6% rise 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.
Cost Actions & High-return Growth Projects 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. DOW is implementing targeted actions focused on optimizing labor and purchased service costs, lowering turnaround spending and boosting productivity. Its targeted actions delivered $1 billion in cost savings for full-year 2023.
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.
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. It is advancing its Decarbonize and Grow and Transform the Waste strategies, which are expected to deliver more than $3 billion in underlying earnings annually by 2030.
The company received a definitive green light from its Board in November 2023 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 project 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 $2.6 billion to its shareholders in 2023 through dividends and share buybacks. Dow also returned $693 million to shareholders in the first quarter of 2024 through dividends and share buybacks. Dow has adequate liquidity of roughly $13.5 billion and no substantial debt maturities until 2027.
Soft Demand a Concern
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. The property sector remains sluggish in China with declining new home prices.
Inflationary pressures are impacting consumer durables and building and construction demand. Demand in infrastructure including residential construction remains weak. Soft conditions across these markets are likely to impact volumes in second-quarter 2024. Demand is expected to remain pressured by elevated inflation, high interest rates and geopolitical tensions over the near term, notably in building and construction and durable goods markets.
Better-ranked stocks in the basic materials space include ATI Inc. (ATI - Free Report) , Carpenter Technology Corporation (CRS - Free Report) and Ecolab Inc. (ECL - Free Report) .
Carpenter Technology currently carries a Zacks Rank #1 (Strong Buy). CRS beat the Zacks Consensus Estimate in three of the last four quarters while matching it once, with the average earnings surprise being 15.1%. The company’s shares have soared roughly 131% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
ATI currently carries a Zacks Rank #2 (Buy). ATI beat the Zacks Consensus Estimate in each of the last four quarters, with the average earnings surprise being 8.3%. The company’s shares have soared around 73% in the past year.
The Zacks Consensus Estimate for Ecolab current year earnings is pegged at $6.59 per share, indicating a year-over-year rise of 26.5%. ECL, a Zacks Rank #2 stock, beat the consensus estimate in each of the last four quarters, with the average earnings surprise being 1.3%. The company’s shares have rallied roughly 34% in the past year.
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Here's Why You Should Hold Onto Dow (DOW) Stock for Now
Dow Inc. (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 14.7% over a year, compared with a 1.6% rise 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.
Cost Actions & High-return Growth Projects 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. DOW is implementing targeted actions focused on optimizing labor and purchased service costs, lowering turnaround spending and boosting productivity. Its targeted actions delivered $1 billion in cost savings for full-year 2023.
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.
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. It is advancing its Decarbonize and Grow and Transform the Waste strategies, which are expected to deliver more than $3 billion in underlying earnings annually by 2030.
The company received a definitive green light from its Board in November 2023 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 project 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 $2.6 billion to its shareholders in 2023 through dividends and share buybacks. Dow also returned $693 million to shareholders in the first quarter of 2024 through dividends and share buybacks. Dow has adequate liquidity of roughly $13.5 billion and no substantial debt maturities until 2027.
Soft Demand a Concern
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. The property sector remains sluggish in China with declining new home prices.
Inflationary pressures are impacting consumer durables and building and construction demand. Demand in infrastructure including residential construction remains weak. Soft conditions across these markets are likely to impact volumes in second-quarter 2024. Demand is expected to remain pressured by elevated inflation, high interest rates and geopolitical tensions over the near term, notably in building and construction and durable goods markets.
Dow Inc. Price and Consensus
Dow Inc. price-consensus-chart | Dow Inc. Quote
Stocks to Consider
Better-ranked stocks in the basic materials space include ATI Inc. (ATI - Free Report) , Carpenter Technology Corporation (CRS - Free Report) and Ecolab Inc. (ECL - Free Report) .
Carpenter Technology currently carries a Zacks Rank #1 (Strong Buy). CRS beat the Zacks Consensus Estimate in three of the last four quarters while matching it once, with the average earnings surprise being 15.1%. The company’s shares have soared roughly 131% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
ATI currently carries a Zacks Rank #2 (Buy). ATI beat the Zacks Consensus Estimate in each of the last four quarters, with the average earnings surprise being 8.3%. The company’s shares have soared around 73% in the past year.
The Zacks Consensus Estimate for Ecolab current year earnings is pegged at $6.59 per share, indicating a year-over-year rise of 26.5%. ECL, a Zacks Rank #2 stock, beat the consensus estimate in each of the last four quarters, with the average earnings surprise being 1.3%. The company’s shares have rallied roughly 34% in the past year.