Should You Buy Dow Inc. Before it Reports Earnings This Week?

NYSE: DOW | Dow Inc. News, Ratings, and Charts

DOW – Renowned commodity chemicals manufacturer Dow (DOW) has scheduled its fiscal second-quarter earnings report release for July 22. While analysts expect the company to deliver robust revenue and earnings growth in its most recent quarter, soaring commodity markets pose a barrier to its long-term growth potential. So, will DOW’s strong foothold in this space offset the industry headwinds? Read more to find out.

Materials science solutions provider Dow Inc. (DOW) is scheduled to release its fiscal second quarter (ended June 2021) on July 22 before the market opens.

Analysts expect the company’s revenues to come in at $13.02 billion in the about-to-be-reported quarter, indicating a 62.6% rise year-over-year. In addition, the company’s EPS is expected to rise 984.6% from the same period last year to $2.30. 

DOW expects the fast-paced macroeconomic recovery and tight market fundamentals to boost all value chains, thereby ensuring leadership in high-growth end-markets, as stated in its second-quarter outlook.

Click here to check out our Industrial Sector Report for 2021

Here’s what could shape DOW’s performance in the near term:

Strong Market Presence

On July 1, DOW announced several incremental, high-capacity expansions to its Consumer Solutions business throughout 2021. In addition, the company plans to make material investments in its silicone business, given the growing demand for high-performance materials that enable sustainable solutions.

On June 30, DOW unveiled three silicone technologies for electric and hybrid electric vehicles. The new technologies are designed to provide higher reliability, safety, and performance, while reducing EV manufacturers’ carbon footprints substantially. And on May 3, DOW partnered with global chemical and ingredient distributor and provider, Downers Grove III, to strategically expand silicone-based defoamers supply to the Mexican agricultural market.

It also plans to increase its propylene glycol production capacity at its Thailand facility by 47.1% to 250,000 tons per year. Dow’s Thailand production facility is expected to become the largest of its kind in the Asia-Pacific region following this expansion, which will optimize its existing asset structure.

Earlier in June, DOW stated that its plans to construct an integrated MDI distillation and prepolymers facility in Texas. This is likely to strengthen DOW’s market position in the construction, consumer, and industrial markets, respectively. Shares of DOW have gained 36.9% over the past year and 8.1% year-to-date.

Goodwill

DOW was named 2021 Manufacturer for the year by the Manufacturing Leadership Council (MLC) in May, owing to its best-in-class performance and achievement over the past year. In addition, the company has received the Enterprise Integration and Technology Award, Supply Chain Award, and Industrial Internet of Things Award from MLC. These accolades demonstrate DOW’s leadership in this space and its role in shaping the future of global manufacturing.

In April, DOW received five gold Edison awards and one silver Edison award in the following categories: Materials Science and Engineering; Manufacturing, Logistics & Transportation; and Sustainability. DOW is the only company  to have won  five Gold Edison awards in a single year; it has also won the highest number of Gold Edison awards of any company over the past decade. These awards demonstrate DOW’s stellar product performance and sustainability capabilities, making it one of the best innovators in this space.

DOW has been recognized as one of the most diversified workplaces in the United States by multiple research firms and rating agencies. In this regard, DOW’s Chief Human Resources Officer and Chief Inclusion Officer Karen Carter said, “Diversity in the workplace is a catalyst for business success…At Dow, we are committed to diversifying our workforce across the talent pipeline and the global enterprise, which enables us to deliver the most value to our stakeholders.”

ESG and Sustainability

On July 12, DOW signed a four-year agreement to become the Official Sustainability Resource for Ladies Professional Golf Association (LPGA) and Ladies European Tour (LET). This partnership is aligned with the company’s 2025 sustainability goals and is expected to create a baseline for long-term success.

DOW’s post-consumer recycled resins were integrated into leading Chinese dairy company Mengniu’s product packaging. This commercialization of PCR in the Asia–Pacific region contributes to DOW’s sustainability commitment to facilitate one million tons of plastic waste to be collected, reused, or recycled by 2030.

Consensus Rating and Price Target Indicate Potential Upside

Of  12 Wall Street analysts that rated DOW, five rated it Buy, five rated it Hold, and two rated it Sell. The $73.25 12-month median price target indicates a 22.1% potential upside from its $60.01 the last closing price. The price targets range from a low of $52.00 to a high of $95.00.

POWR Ratings Show Promise

DOW has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

DOW has a B grade for Value and Sentiment. The stock’s 8.60 and 0.25 respective non-GAAP forward P/E and PEG ratios are significantly lower than the 14.51 and 1.38 industry averages and are in sync with its Value grade. In addition, analysts expect the company’s revenue and EPS to increase 27.8% and 321.1%, respectively,  year-over-year to $49.27 billion and $6.99, consistent with the Sentiment grade.

Of the 99-stocks in the B-rated Chemicals industry, DOW is ranked #15.

Beyond what we’ve stated above, we have rated DOW for Growth, Momentum, Stability, and Quality. Get all DOW ratings here.

Click here to view the top-rated stocks in the Chemicals industry.

Bottom Line

DOW began trading on the NYSE on April 1, 2019, after its spin-off from parent company DowDuPont. With trailing-12-months revenues worth $40.65 billion, DOW is one of the largest commodity chemicals manufacturers in the world. Furthermore, DOW is expected to grow substantially amid the reflation environment as the demand for commercial and commodity chemicals rises.

While Bank of America analyst Steve Bryne expects the company’s modest profit margins to maintain pressure on the company’s expansion potential, DOW’s high dividend yield and the bullish market outlook are expected to offset the implied risks. The stock’s 4.67% forward dividend yield  is 153.8% higher than the 1.84% industry average. Bryne expects top-line growth and commodity margins to be at peak levels ahead of the earnings season. However, the consensus estimates for fiscal 2021 indicate explosive growth through the remainder of this year. Thus, we think DOW is an attractive investment bet now. 

Click here to check out our Industrial Sector Report for 2021


DOW shares were trading at $58.05 per share on Monday morning, down $1.96 (-3.27%). Year-to-date, DOW has gained 6.83%, versus a 14.57% rise in the benchmark S&P 500 index during the same period.


About the Author: Aditi Ganguly


Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...


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