On Tuesday, Wells Fargo (NYSE:WFC) updated its financial outlook for Dow Inc. (NYSE:DOW), raising the price target to $68 from the previous $63 while maintaining an Overweight rating on the stock. The firm anticipates a moderation in earnings per share (EPS) for the first quarter of 2024, projecting a figure of $0.42, which is a 28% decrease year-over-year, based on an estimated EBITDA of $1.25 billion, down by 8% from the previous year.
Looking ahead to the full year of 2024, Wells Fargo expects Dow Inc.'s EPS to increase by 43% year-over-year to $3.20, supported by an anticipated EBITDA of $6.5 billion, marking a 21% increase from the prior year. The firm attributes this growth to a combination of factors including a $300 million to $400 million margin expansion, a $800 million increase in volumes across various segments, and a $100 million boost in equity earnings. However, these gains are expected to be partially offset by a $200 million impact from turnarounds.
For the year 2025, the firm's outlook is also positive, with projections of a 32% year-over-year rise in EPS to $4.22, and an EBITDA of $7.5 billion, up by 16% from the previous year. Wells Fargo notes that Dow Inc.'s sustainability initiatives are likely to contribute to this growth, potentially adding an incremental $1 billion in EBITDA by the middle of the decade.
The revised price target of $68 is based on a 6.0 times multiple of the firm's mid-cycle EBITDA estimate of $10 billion, or 9 times the projected 2024 enterprise value to EBITDA ratio.
This new target reflects an anticipation of improved EBITDA from the trough conditions experienced in 2023, with the firm noting that polyethylene integrated margins have consistently outperformed past trough levels and that there is limited new capacity expected beyond 2025.
InvestingPro Insights
As Wells Fargo presents an optimistic outlook for Dow Inc. (NYSE:DOW), real-time metrics from InvestingPro align with some aspects of this positive sentiment. The company's management has been actively engaging in share buybacks, signaling confidence in the business's value and future prospects. This is complemented by a high shareholder yield, which is a point of attraction for investors seeking tangible returns. Additionally, analysts predict that Dow Inc. will maintain profitability this year, building on its performance over the last twelve months.
From a financial perspective, Dow Inc.'s market capitalization stands at $40.97 billion, with a trailing twelve-month P/E ratio adjusted for Q4 2023 at 31.78. Despite a decline in revenue growth by -21.58% over the same period, the company still managed to secure a gross profit of $5.057 billion. For investors looking for income, the dividend yield is notably appealing at 4.81%. Moreover, Dow Inc. is trading near its 52-week high, with the price at 99.18% of this peak, reflecting investor confidence.
For those considering a deeper dive into Dow Inc.'s financials and future, InvestingPro offers additional insights. There are 9 more InvestingPro Tips available, which can help investors make informed decisions. These tips include expectations on net income growth and an analysis of the company's position within the Chemicals industry. For those wanting to access these valuable insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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