On Friday, RBC Capital adjusted its outlook for Dow Inc. (NYSE: NYSE:DOW), a leading materials science company, by reducing its price target from $57.00 to $55.00, while maintaining a Sector Perform rating on the stock.
The revision follows Dow's announcement on Thursday, September 12, 2024, of a lowered guidance for the third quarter of 2024, attributing the revision to a significant unplanned outage in Texas and margin pressure in Europe.
Consequently, RBC Capital has revised its earnings estimates for Dow, decreasing its projections for the third quarter, full year 2024, and full year 2025 to $1.30 billion, $5.60 billion, and $6.70 billion respectively, from the previous estimates of $1.50 billion, $5.96 billion, and $6.81 billion.
The price target adjustment to $55.00 is based on a constant 7x multiple of the firm's forecasted FY25 EBITDA. The Texas outage, which appears to be specific to Dow, is among the primary reasons for the lowered earnings forecast, although it is noted that other companies likely incurred some storm-related damage as well.
RBC Capital also highlighted concerns beyond Dow, indicating that higher input costs in Europe and generally weak global demand across various commodity chains could pose slight headwinds for other companies in the sector, including LyondellBasell Industries (NYSE:LYB), Westlake Chemical (NYSE:WLK), Olin (NYSE:OLN) Corporation, Huntsman (NYSE:HUN) Corporation, Celanese (NYSE:CE) Corporation, and Eastman Chemical Company (NYSE:EMN).
The firm's commentary underscores the challenges faced by Dow and its peers in the industry due to operational disruptions and adverse market conditions in Europe, which are impacting financial performance and outlook.
InvestingPro Insights
Amidst RBC Capital's revised outlook for Dow Inc. (NYSE: DOW), InvestingPro data and tips offer additional context for investors considering the company's stock. According to recent metrics, Dow Inc. has a market capitalization of $35.23 billion, underlining its significant presence in the materials science sector. The company's price-to-earnings (P/E) ratio, a key indicator of market expectations, stands at an adjusted 20.78 for the last twelve months as of Q2 2024, suggesting a relatively high valuation compared to historical earnings.
Notably, Dow Inc. is trading near its 52-week low, which could be an intriguing point for investors looking for potential value opportunities. Furthermore, the company pays a substantial dividend to shareholders, with a current yield of 5.57%, a factor that might appeal to income-focused investors. This comes alongside the management's aggressive share buyback strategy, which can often signal confidence in the company's future prospects and a commitment to delivering shareholder value.
However, it's important to consider that Dow Inc. is grappling with weak gross profit margins, currently at 11.78%. This might raise concerns about the company's ability to maintain profitability in the face of operational challenges and margin pressures, as noted in RBC Capital's report.
For a more comprehensive analysis, investors can access additional InvestingPro Tips for Dow Inc., which include insights on expected net income growth, the company's earnings multiple, and its status as a prominent player in the Chemicals industry. In total, there are 10 InvestingPro Tips available for Dow Inc., which can be found at https://www.investing.com/pro/DOW, offering a deeper dive into the company's financial health and market position.
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