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Dow (DOW) Gains on Cost & Productivity Actions Amid Demand Woes

Dow Inc. DOW is expected to benefit from cost and productivity actions and investment in high-return projects. However, soft demand due to weak global economic activities pose headwinds.

The company’s shares are up 3.4% over a year compared with a 5.1% decline recorded by its industry.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research


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.

The company 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.

DOW 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.

However, DOW is exposed to 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.

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Dow Inc. Price and Consensus

 

Dow Inc. Price and Consensus
Dow Inc. Price and Consensus

Dow Inc. price-consensus-chart | Dow Inc. Quote

 

Zacks Rank & Key Picks

DOW currently has a Zacks Rank #3 (Hold).

Better-ranked stocks in the basic materials space include Axalta Coating Systems Ltd. AXTA, Carpenter Technology Corporation CRS and ATI Inc. ATI.

Carpenter Technology currently carries a Zacks Rank #1. 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 105% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Axalta Coating Systems, carrying a Zacks Rank #1, has a projected earnings growth rate of 26.8% for the current year. In the past 60 days, the consensus estimate for AXTA's current-year earnings has been revised upward by 5.9%. The company’s shares have gained roughly 16% in the past year.

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 rallied around 54% in the past year.

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Dow Inc. (DOW) : Free Stock Analysis Report

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