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Here's Why You Should Retain Dow (DOW) Stock in Your Portfolio
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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 10.8% 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 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. 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. It delivered $250 million of savings under this program in the second quarter of 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.
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.
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 the Decarbonize and Grow strategy to increase underlying earnings by $3 billion annually.
Weak 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. 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 third-quarter 2023. The challenging macroeconomic environment is expected to continue in the third quarter.
Dow also faces headwinds from plant turnaround costs in the third quarter. It sees increased planned maintenance turnaround activities in the Packaging & Specialty Plastics segment in the quarter. These include the turnaround at its cracker in St. Charles. Dow expects an associated headwind of roughly $100 million in the third quarter. The company also expects a $100 million headwind on earnings in the third quarter associated with an outage at its Plaquemine glycol plant in Louisiana.
Better-ranked stocks worth a look in the basic materials space include Hawkins, Inc. (HWKN - Free Report) , Carpenter Technology Corporation (CRS - Free Report) and The Andersons Inc. (ANDE - Free Report) .
Hawkins has a trailing four-quarter earnings surprise of roughly 25.6%, on average. HWKN shares are up around 52% in a year.
The Zacks Consensus Estimate for current fiscal-year earnings for CRS is currently pegged at $3.48, implying year-over-year growth of 205.3%. Carpenter Technology currently carries a Zacks Rank #2 (Buy).
Carpenter Technology has a trailing four-quarter earnings surprise of roughly 10%, on average. The stock has rallied around 85% over the past year.
Andersons currently carries a Zacks Rank #2. The Zacks Consensus Estimate for ANDE's current-year earnings has been revised 3.3% upward over the past 60 days.
Andersons beat the Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 64.4%, on average. ANDE shares have rallied around 53% in a year.
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Here's Why You Should Retain Dow (DOW) Stock in Your Portfolio
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 10.8% 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 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. 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. It delivered $250 million of savings under this program in the second quarter of 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.
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.
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 the Decarbonize and Grow strategy to increase underlying earnings by $3 billion annually.
Weak 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. 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 third-quarter 2023. The challenging macroeconomic environment is expected to continue in the third quarter.
Dow also faces headwinds from plant turnaround costs in the third quarter. It sees increased planned maintenance turnaround activities in the Packaging & Specialty Plastics segment in the quarter. These include the turnaround at its cracker in St. Charles. Dow expects an associated headwind of roughly $100 million in the third quarter. The company also expects a $100 million headwind on earnings in the third quarter associated with an outage at its Plaquemine glycol plant in Louisiana.
Dow Inc. Price and Consensus
Dow Inc. price-consensus-chart | Dow Inc. Quote
Stocks to Consider
Better-ranked stocks worth a look in the basic materials space include Hawkins, Inc. (HWKN - Free Report) , Carpenter Technology Corporation (CRS - Free Report) and The Andersons Inc. (ANDE - Free Report) .
Hawkins has a projected earnings growth rate of 18.9% for the current year. It currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Hawkins has a trailing four-quarter earnings surprise of roughly 25.6%, on average. HWKN shares are up around 52% in a year.
The Zacks Consensus Estimate for current fiscal-year earnings for CRS is currently pegged at $3.48, implying year-over-year growth of 205.3%. Carpenter Technology currently carries a Zacks Rank #2 (Buy).
Carpenter Technology has a trailing four-quarter earnings surprise of roughly 10%, on average. The stock has rallied around 85% over the past year.
Andersons currently carries a Zacks Rank #2. The Zacks Consensus Estimate for ANDE's current-year earnings has been revised 3.3% upward over the past 60 days.
Andersons beat the Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 64.4%, on average. ANDE shares have rallied around 53% in a year.