The Dow Chemical Company recently announced plans to initiate the construction of a new Innovation Center worth $100 million. The facility is designed to drive innovation at the intersection of organic chemistry and silicone science at the heritage Dow Corning corporate campus in the Great Lakes Bay Region, MI.
The center will host roughly 200 research and development (R&D) employees, responsible for exploring future technologies at the intersections of silicone chemistry and the company’s unmatched knowledge of organic chemistry and materials science.
According to Dow, the new facility will play a major role for achieving its initial $100 million growth synergy target along with more than $500 million of additional Dow-enabled bottom-line growth. Dow’s latest cost synergy target of more than $650 million along with this bottom-line growth, will improve silicones’ profitability. The company now expects EBITDA (earnings before interest, tax, depreciation & amortization) to increase and surpass the $2 billion mark by the end of 2019, which is more than double its initial projection.
Further, the new R&D facility will complement over 1,200 researchers and developers of Dow, already based in the Great Lakes Bay Region. It will help the company to focus on various market opportunities like advancing materials science for critical infrastructure, broadening and enhancing Dow’s energy-saving building technologies, advancing technologies for personal care and home products and also driving closer partnerships with value chain leaders and customers.
Over the last decade, Dow along with its regional development partners have driven more than $400 million of investment and economic redevelopment in the Great Lakes Bay Region. The company has also created more than 10,000 indirect and direct jobs in the U.S. in the last four years.
Recently, the company also announced the next phase of its strategic investments which are spread over the next five years. The proposed investments extend the company’s growth investments in the U.S. to more than $12 billion over a period of 10 years. This will create roughly 3,500 construction jobs, 200 full-time vocational, technical and professional careers and further support around 2,000 jobs across the broader economy.
Shares of Dow have moved up 2% in the last three months, slightly underperforming the industry’s 2.9% growth.
Dow topped earnings expectations in second-quarter 2017, on the back of its cost-cutting and productivity actions, improved pricing and continued focus on consumer-driven markets. The U.S. chemical giant registered adjusted earnings (barring one-time items) of $1.08 per share for the quarter that comfortably beat the Zacks Consensus Estimate of $1.01.
Dow is witnessing improved global economic activity with strong momentum in manufacturing, investment and trade. While strength of the consumer is driving expansion in the U.S., improvement in Europe is expected to remain on a steady track. The company is also seeing signs of stabilization in Latin America, especially in the agriculture market. Dow also believes that it is well positioned to capture demand in consumer-led markets.
The company is expected to gain from its focus on consumer-led markets and its strategic investments in the U.S. Gulf Coast and the Middle East. Dow is also expected to benefit from its productivity management actions and cost synergies associated with Dow Corning Silicones business. The planned merger with DuPont is also expected to create significant synergies.
Dow currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks in the basic materials space are POSCO and Kronos Worldwide Inc (KRO - Free Report) . Both stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
POSCO has expected long-term earnings growth rate of 5%.
Kronos Worldwide has expected long-term earnings growth rate of 5%.
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