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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 benefit from cost and productivity initiatives and investment in high-return projects amid headwinds from demand weakness due to weak global economic activities.
The company’s shares are down 22.8% over a year, compared with a 6.5% decline 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 and Growth Projects Favor DOW
The company is expected to 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 expects its investment in digital initiatives to drive efficiency and allow it to realize $300 million EBITDA run rate by the end of 2023. 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.
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. The company also commissioned its fluidized catalytic dehydrogenation pilot plant in Louisiana in fourth-quarter 2022 to manufacture propylene for coatings, electronics and durables markets. It also delivered silicones downstream debottlenecking projects last year.
The company is also committed to return value to its shareholders by leveraging healthy cash flows. Dow generated strong operating cash flows of $7.5 billion in 2022. It also generated free cash flow of roughly $5.7 billion for the year. The company returned $4.3 billion to its shareholders in 2022 through dividends and share buybacks. Dow also returned $621 million to shareholders in the first quarter of 2023 through dividends and share buybacks.
Weak Demand, Turnarounds Ail
Dow is exposed to headwinds from weaker demand in Europe and Asia. Lower consumer spending amid inflationary pressures is affecting demand in Europe. In the Performance Materials & Coatings segment, the company is seeing weaker demand in consumer electronics and industrial end markets.
Weakening conditions across these markets are likely hurt volumes in this segment in second-quarter 2023. Inflationary pressures are also impacting consumer durables and building and construction demand in Europe, affecting the Industrial Intermediates & Infrastructure segment.
The company also faces headwinds from plant turnaround costs in the second quarter. It sees increased planned maintenance activities in the Packaging & Specialty Plastics segment in the quarter.
Dow expects an associated headwind of roughly $25 million in the second quarter. Moreover, Industrial Intermediates & Infrastructure is expected to face a $50 million headwind in the quarter related to turnaround at its Louisiana glycols facility. Costs associated with turnarounds are likely to impact Dow's margins.
Better-ranked stocks worth considering in the basic materials space include L.B. Foster Company (FSTR - Free Report) , Nucor Corporation (NUE - Free Report) and Linde plc (LIN - Free Report) .
L.B. Foster currently carries a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for FSTR's current-year earnings has been stable over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
L.B. Foster’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 140.5%, on average. FSTR has gained around 2% in a year.
Nucor currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for NUE’s current-year earnings has been revised 13.4% upward in the past 60 days.
Nucor beat Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 10.8% on average. NUE’s shares have gained roughly 13% in the past year.
Linde currently carries a Zacks Rank #2. The Zacks Consensus Estimate for LIN’s current-year earnings has been revised 3.8% upward in the past 60 days.
Linde beat Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 6.9% on average. LIN’s shares have gained roughly 14% 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 benefit from cost and productivity initiatives and investment in high-return projects amid headwinds from demand weakness due to weak global economic activities.
The company’s shares are down 22.8% over a year, compared with a 6.5% decline 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 and Growth Projects Favor DOW
The company is expected to 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 expects its investment in digital initiatives to drive efficiency and allow it to realize $300 million EBITDA run rate by the end of 2023. 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.
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. The company also commissioned its fluidized catalytic dehydrogenation pilot plant in Louisiana in fourth-quarter 2022 to manufacture propylene for coatings, electronics and durables markets. It also delivered silicones downstream debottlenecking projects last year.
The company is also committed to return value to its shareholders by leveraging healthy cash flows. Dow generated strong operating cash flows of $7.5 billion in 2022. It also generated free cash flow of roughly $5.7 billion for the year. The company returned $4.3 billion to its shareholders in 2022 through dividends and share buybacks. Dow also returned $621 million to shareholders in the first quarter of 2023 through dividends and share buybacks.
Weak Demand, Turnarounds Ail
Dow is exposed to headwinds from weaker demand in Europe and Asia. Lower consumer spending amid inflationary pressures is affecting demand in Europe. In the Performance Materials & Coatings segment, the company is seeing weaker demand in consumer electronics and industrial end markets.
Weakening conditions across these markets are likely hurt volumes in this segment in second-quarter 2023. Inflationary pressures are also impacting consumer durables and building and construction demand in Europe, affecting the Industrial Intermediates & Infrastructure segment.
The company also faces headwinds from plant turnaround costs in the second quarter. It sees increased planned maintenance activities in the Packaging & Specialty Plastics segment in the quarter.
Dow expects an associated headwind of roughly $25 million in the second quarter. Moreover, Industrial Intermediates & Infrastructure is expected to face a $50 million headwind in the quarter related to turnaround at its Louisiana glycols facility. Costs associated with turnarounds are likely to impact Dow's margins.
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 L.B. Foster Company (FSTR - Free Report) , Nucor Corporation (NUE - Free Report) and Linde plc (LIN - Free Report) .
L.B. Foster currently carries a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for FSTR's current-year earnings has been stable over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
L.B. Foster’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 140.5%, on average. FSTR has gained around 2% in a year.
Nucor currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for NUE’s current-year earnings has been revised 13.4% upward in the past 60 days.
Nucor beat Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 10.8% on average. NUE’s shares have gained roughly 13% in the past year.
Linde currently carries a Zacks Rank #2. The Zacks Consensus Estimate for LIN’s current-year earnings has been revised 3.8% upward in the past 60 days.
Linde beat Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 6.9% on average. LIN’s shares have gained roughly 14% in the past year.