On Tuesday, Evercore ISI raised its rating on shares of Dow Inc. (NYSE: NYSE:DOW) to Outperform from In Line and set a price target of $56.00. The upgrade comes as the stock trades near its 52-week low of $40.57, down about 23% year-to-date. The upgrade comes amidst a mixed outlook for the chemicals sector, influenced by contrasting industrial demand and future market prospects. According to InvestingPro, the stock currently shows oversold conditions, with multiple indicators suggesting potential value opportunity.
The firm acknowledges the challenges faced by the industry, including the recent collapse in polyethylene (PE) price nominations and worsening projections for 2025 automobile production. While the stock offers an attractive 6.98% dividend yield, the ongoing uncertainties regarding tariff and trade implications were highlighted as significant concerns. InvestingPro analysis shows the company maintains a Fair Value above current trading levels, suggesting potential upside despite these headwinds.
Despite these headwinds, Evercore ISI suggests that the potential for an improved economic environment in 2025 should not be overlooked. The analyst anticipates the possibility of multiple Federal Reserve rate cuts, subsequent declines in mortgage rates, and a rebound in U.S. chemical volumes following two years of contraction.
With an expectation for necessary adjustments to EBITDA and EPS forecasts for the first quarter and full year of 2025, the firm believes that any signs of demand improvement could lead to a sharp increase in stock prices. Investors are advised to position themselves accordingly in anticipation of market changes.
In a related move, Evercore ISI announced the transfer of lead coverage for 11 chemical companies to Eric Boyes. The shift in coverage comes alongside the optimistic upgrade of Dow's stock, reflecting a strategic realignment within the firm's research team.
The company recently sold a 40% stake in certain U.S. Gulf Coast infrastructure assets to Macquarie Asset Management for $2.4 billion, a move aligned with its initiative to optimize its global asset portfolio. In financial news, Dow reported a modest 1% year-over-year increase in net sales for the third quarter of 2024, amounting to $10.9 billion, and an operating EBIT of $641 million. However, cash flow from operations decreased to $800 million due to an increase in inventories.
On the analyst front, Piper Sandler lowered its price target for Dow to $60 but retained an overweight rating on the stock. Meanwhile, Mizuho (NYSE:MFG) raised its price target to $56, and Jefferies cut its target to $53, both maintaining a neutral rating. These revisions followed Dow's third-quarter earnings per share of $0.47, surpassing estimates.
In addition, Dow is conducting a strategic review of its European Polyurethanes assets, with results expected by mid-2025. Despite facing challenges such as high energy costs and slower demand affecting European margins, Dow aims to achieve over $3 billion in additional annual earnings by 2030, backed by strategic asset management and investments.
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