Company Reports

Dow Chemical's first-quarter results showed demand was recovering in line with our outlook for the cadence of the year. Volumes rose 1% versus the prior-year quarter, following inventory destocking that weighed on 2023 results. In 2024, we think Dow will generate higher profits from a favorable price-to-cost spread and improved volumes, which will allow the company to run its plants at a higher capacity utilization.

Dow Chemical is one of the largest chemicals producers in the world, producing key components for a broad range of industrial and consumer chemical and plastic products. The company’s history spans over 125 years and features an evolving product portfolio. In its current form, Dow is the commodity chemicals company created in 2019 from the DowDuPont merger and subsequent separations.

Dow Chemical is one of the largest chemicals producers in the world, producing key components for a broad range of industrial and consumer chemical and plastic products. The company’s history spans over 125 years and features an evolving product portfolio. Dow is the commodity chemicals company created in 2019 from the DowDuPont merger and subsequent separations.

Narrow-moat Dow continued to face headwinds across end markets and geographies. Despite exceeding fourth-quarter sales guidance, the company posted a 22% revenue contraction for fiscal 2023. All three segments contributed equally to the decline. Firmwide EBITDA margin also fared poorly, averaging 12% for the year, compared with 21% in 2022. We’re slightly lowering our fair value estimate to $68 from $69 following the results, but shares remain undervalued at the time of writing. We view Dow’s recent performance as a reflection of a weak macroeconomic environment worldwide. While we don’t foresee near-term relief, we remain optimistic about Dow’s long-run prospects.

Dow Chemical is one of the largest chemicals producers in the world, producing key components for a broad range of industrial and consumer chemical and plastic products. The company’s history spans over 125 years and features an evolving product portfolio. Dow is the commodity chemicals company created in 2019 from the DowDuPont merger and subsequent separations.

Dow Chemical is one of the largest chemicals producers in the world, producing key components for a broad range of industrial and consumer chemical and plastic products. The company’s history spans over 125 years and features an evolving product portfolio. Dow is the commodity chemicals company created in 2019 from the DowDuPont merger and subsequent separations.

A sluggish macroeconomic environment around the world continued to weigh on Dow’s performance in the third quarter, with little relief expected through year-end. Total revenue dropped below $11 billion, a 6% sequential decline, as a result of restrained volumes and unfavorable pricing dynamics across end markets and regions. As a result, the firmwide operating margin contracted by nearly 150 basis points quarter over quarter.

Dow’s second-quarter performance reflected the adverse economic conditions worldwide, with total revenue down 27% year over year and down 4% sequentially. The firmwide EBITDA margin declined more than 600 basis points year over year owing to lower volumes across end markets (led by operations in Europe, the Middle East, and Africa) and lower pricing. Margins increased nearly 200 basis points sequentially, however, as a result of reduced input costs and operational efficiency gains as the firm progresses on its $1 billion cost savings initiative. We maintain our $72 fair value estimate and narrow moat rating, as we expect Dow’s performance will improve along with a global economic recovery around 2024 and beyond.

Dow Chemical is one of the largest chemicals producers in the world, producing key components for a broad range of industrial and consumer chemical and plastic products. The company’s history spans over 125 years and features an evolving product portfolio. In its current iteration, Dow is the commodity chemicals company created in 2019 from the DowDuPont merger and subsequent separations.

We maintain our favorable long-term outlook for narrow-moat Dow as prospects for global petrochemicals demand remains robust over the next five years or so. Though near-term macroeconomic headwinds will contribute to an overall weak 2023 for the firm, we’re optimistic about recovering end market demand around year-end and beyond. With a solid long-term outlook, the firm’s shares offer material upside relative to our $72 per share fair value estimate.

Narrow-moat Dow reported a solid start to fiscal 2023, maintaining flat sequential revenue growth despite typical seasonal headwinds and following a strong fourth-quarter 2022. Companywide EBITDA margin expanded nearly 100 basis points to 11.4% as input cost-inflation eased and pricing improved in several end markets. The firm also recognized about $100 million in cost savings attributable to its internal cost-optimization initiative. This represents roughly 10% of the approximately $1 billion cost-outs anticipated for 2023, the majority of which will likely materialize in the second half of the year. We maintain our $72 per share fair value estimate following results.

Dow Chemical is one of the largest chemicals producers in the world, producing key components for a broad range of industrial and consumer chemical and plastic products. The company’s history spans over 125 years and features an evolving product portfolio. In its current iteration, Dow is the commodity chemicals company created in 2019 from the DowDuPont merger and subsequent separations.

Narrow-moat Dow reported a weak fourth quarter as inflation, economic concerns, and geopolitical tensions tempered demand and inhibited firm operations around the world. Fourth-quarter revenue declined 17% year over year and 16% sequentially due to reduced volumes and unfavorable pricing movements on top of standard seasonal impacts. On the whole, 2022 results were solid for Dow due to a strong first half. Annual revenue increased 3.5% year over year following an exceptionally strong 2021. The firm's annual EBITDA margin contracted to 21% from 28% but remained above its historical average of 17%. Many of the challenges that materialized at the end of 2022 will likely persist into the first quarter of 2023, but we maintain our view that these near-term headwinds—some of which are already abating—are unlikely to materially constrain Dow’s potential value generation over the long run. In fact, we’re raising our fair value estimate to $72 from $65 following results.

Dow Chemical is one of the largest chemicals producers in the world, producing key components for a broad range of industrial and consumer chemical and plastic products. The company’s history spans over 125 years and features an evolving product portfolio. In its current iteration, Dow is the commodity chemicals company created in 2019 from the DowDuPont merger and subsequent separations.

We’re launching coverage of Dow Chemical, one of the largest chemical manufacturers in the world, with a $65 per share fair value estimate. The company produces chemical derivatives applicable in a myriad of consumer and industrial end products, ranging from inks to adhesives to crop protection. We award the firm a narrow moat and stable moat trend based on a significant cost advantage derived from its North American-based production. Despite near-term headwinds from inflated input costs, we’re optimistic about the firm’s prospects in the medium to long term. Accordingly, we view shares as undervalued relative to our fair value estimate. The firm earns a Morningstar Uncertainty Rating of Medium.

Dow Chemical is one of the largest chemicals producers in the world, producing key components for a broad range of industrial and consumer chemical and plastic products. The company’s history spans over 125 years and features an evolving product portfolio. In its current iteration, Dow is the commodity chemicals company created in 2019 from the DowDuPont merger and subsequent separations.

Given recent political developments around the Build Back Better bill, we are reversing our forecast that the U.S. corporate tax rate will rise to 26% in 2022. We now believe the U.S. statutory tax rate will remain at 21% at least through President Joe Biden’s remaining term, which ends in early 2025. Our equity analysts will incorporate this new U.S. corporate tax rate assumption into their valuation models in the coming weeks. We previously simulated the impact of various tax rate changes on covered U.S. equities; reversing the statutory tax rate assumption to 21% results in a 3% average valuation increase, all else being equal.

We expect a U.S. corporate tax hike to be passed this year. Our probability-weighted forecast is an increase in the statutory tax rate to 26% from 21% currently. Our equity analysts will be incorporating the new tax rate into their valuation models over the coming weeks, but our preliminary analysis suggests a mid-single-digit impact to the average U.S. equity valuation.