November 7, 2023, $48.52
Business Overview:
- Dow Inc. is a global leader in specialty chemicals and materials, operating in 160+ countries with around 37,000 employees. They focus on innovative solutions for global challenges like sustainable energy, water conservation, and food security, serving many industries and consumers with various products and services.
Maverick Guidance:
- Short-term technical buy/sell recommendation: DOUBLE BOTTOM BREAKDOWN ON OCTOBER 12.
- Long-term portfolio recommendation: ACCUMULATE ON WEAKNESS IF INTERESTED IN DIVIDEND YIELD.
- A healthy operating improvement is anticipated from 2024 onward, with attractive potential for long-term capital gains and a generous dividend yield.
- 10-year Average Annual Total Return (+5.09% through Nov 6, 2023) with recent losses, but total returns will likely improve substantially in the next five years.
- Patient, income-seeking Maverick investors seeking exposure to the chemicals sector may find Dow Inc. shares appealing. Otherwise, avoid DOW for now.
Consideration for Maverick Portfolio:
- DOW is presently not appropriate in any portfolio for Maverick investors. Too many unknowns.
- Presently under review as business conditions appear to be improving.
Market Guidance:
- Consensus Analyst Ratings— MarketBeat = Hold, TipRanks = Moderate Buy
- 13 Wall Street analysts have offered 12-month price targets in the last 3 months. There are 4 Buy, 9 Hold, and zero Sell. (from TipRanks)
- Based on 13 Wall Street analysts offering 12-month price targets in the last 3 months, the average price target is $55.70, with a high forecast of $60.00 and a low forecast of $52.00. The average price target represents a +14.8% change from the last price of $48.52. (from TipRanks)
- Dividend Yield: $0.70 per share paid quarterly to yield 5.63%.
- Dividend growth for 4 years. (from TipRanks)
- Technical Sentiment (based on Technical Indicators and Moving Averages):
- INVESTING.com = Daily (STRONG SELL) and Weekly (STRONG SELL)
- TipRanks = Daily (SELL) and Weekly (NEUTRAL)
Value Line Guidance:
- Company Financial Strength Rating: A
- Share Price Safety, Market Timing, Technical Rank: 1=best. 5=worst
- Share Price Safety: 3 of 5
- Market Timing: 3 of 5
- Technical Rank: 3 of 5
- Beta: 1.10
- Stock’s Price Stability: 60/100
- Price Growth Persistence: NMF
- Earnings Predictability: NMF
- Average Annual PE: 12
- Average Annual Sales Growth in the past 5 years: N/A
- Average Annual Sales Growth for the next 5 years: +6.5%
- Average Annual Cash Flow Growth in the past 5 years: N/A
- Average Annual Cash Flow Growth for the next 5 years: +5.5%
- Average Annual Earnings Growth in the past 5 years: N/A
- Average Annual Earnings Growth for the next 5 years: +5.0%
- Average Annual Dividend Growth in the past 5 years: N/A
- Average Annual Dividend Growth next 5 years: +5.0%
- Average Annual Dividend Yield 3 to 5 years: +4.2%
Financial Performance
- 10-year Average Annual Total Return: +5.09% (through Nov 6, 2023) (4th Quartile)
- EPS
- 2020: $1.66
- 2021: $8.98
- 2022: $6.25
- 2023: e$2.75
- 2024: e$4.25 (from Value Line Quarterly Report)
- Average Annual PE: 12 (VL Quarterly Report)
- PEG Ratio: ?? (FinViz)
- Beta: 1.33 (FinViz)
Quarterly Reports Summaries (including Revenue, Cash Flow, Earnings):
3Q2023 (September) Oct. 24 report
- In Q3 of 2023, Dow Inc. reported GAAP earnings per share: $0.42; operating earnings per share (EPS): $0.48, down from $1.11 in the previous year and $0.75 in the prior quarter, excluding significant items.
- Net sales: $10.7 billion, a -24% decrease year-over-year and a -6% decrease sequentially.
- Volume: Decreased -6% year-over-year, increased +1% sequentially (+3% excluding merchant Hydrocarbons & Energy sales).
- Local price: Declined -18% year-over-year and -7% sequentially, mainly due to lower feedstock and energy costs.
- Equity losses: -$7 million, improved from -$58 million in the previous year and -$57 million in the prior quarter.
- GAAP net income: $327 million.
- Operating EBIT: $626 million, down from $1.2 billion in the previous year, primarily due to lower local prices. Sequentially, Op. EBIT decreased by -$259 million.
- Cash provided by operating activities – continuing operations: $1.7 billion, down -$282 million year-over-year, but up +$311 million compared to the prior quarter. Achieved cash flow conversion of 103% on a trailing 12-month basis.
- Returns to shareholders: Totaling $617 million in the quarter, including $492 million in dividends and $125 million in share repurchases.
2Q2023 (June)
- In Q2 of 2023, Dow Inc. reported unfavorable results, with a 27% decline in top-line revenue compared to the previous year.
- This decline was attributed to lower demand and prices across all operating segments, driven by slower macroeconomic activity.
- The Packaging and Specialty Plastics segment was affected by lower polyethylene prices and reduced input costs, as well as decreased sales in olefin and aromatics.
- The Industrial Intermediates and Infrastructure segment experienced reduced demand for consumer durables, building and construction products, and industrial applications.
- The Performance Materials & Coatings segment faced challenges due to price declines in siloxanes and acrylic monomers despite increased demand for building and construction products and electronics.
- Earnings per share for the quarter were $0.75, significantly lower than the prior year.
- Dow is expected to face ongoing challenges, with a significant pullback in sales and earnings for the full year 2023.
- However, the company’s aggressive cost-cutting measures are expected to lead to improved earnings in the future.
- Dow’s competitive advantages include feedstock flexibility, global scale, and geographic diversity.
- The company’s control of operating expenses will benefit its future performance.
- While Dow remains vulnerable to global economic weakness, its stock is predicted to track the broader market averages in the short term.
1Q2023 (March)
- Dow Inc. shares have experienced recent price declines.
- Unfavorable financial results were reported for the March quarter, and this trend is expected to continue in the June quarter.
- Macroeconomic weaknesses are anticipated to impact all of Dow’s operating segments.
- The company’s cost-cutting efforts, aiming for $1 billion in savings this year, are expected to support profitability.
- A moderate decline in top-line revenue and significantly lower earnings per share for 2023 are foreseen.
- Long-term prospects are more positive, as industry fundamentals remain strong, and Dow is well positioned in the chemicals sector.
- Demand in Dow’s markets is expected to improve as the broader economy recovers, despite potential challenges along the way.
- Competitive advantages for Dow include global scale, feedstock flexibility, geographic diversity, and cost control measures.
- The company has collaborated to develop renewable plastic materials and sustainable finishing materials for automotive and upholstery industries.
The 3-to-5-year Operational and Financial Outlook:
- In the long term, the shares offer potential for worthwhile mid-range Dow 30 total returns, supported by a generous dividend yield. This makes them attractive to income-seeking investors in the chemicals sector.
Company SWOT Analysis
Internal Strategic Factors:
Strengths
- Dow has a diverse portfolio of specialty chemicals, advanced materials, AgroSciences, and plastics businesses.
- Offers technology-based products and solutions to customers in around 160 countries.
- Utilizes vertically integrated manufacturing operations globally.
- Engages in strategic joint ventures to enhance its product portfolio.
- The wide-ranging product portfolio includes chemicals, plastics, performance chemicals, catalysts, coatings, crop technology, crude oil, and natural gas.
- Employs over 40,000 people globally.
- Participates in major collaborations for CSR activities, including Lab Safety Academy and Nature Conservancy.
- Demonstrates a successful track record of developing new products through product innovation.
- Excel in entering and succeeding in new markets, diversifying the economic cycle risk.
- Benefits from a strong base of reliable suppliers for raw materials, overcoming supply chain bottlenecks.
- Implements automation for consistent product quality and scalability based on market demand.
- Effective at Go-To-Market strategies for its products.
- Maintains a strong brand portfolio, facilitating expansion into new product categories.
- Achieves good returns on capital expenditure through the execution of new projects.
- Has a robust distribution network, reaching most of its potential market.
Weaknesses
- Overreliance on suppliers increases risk.
- Legal issues and lawsuits negatively affect the brand image and finances.
- Espionage allegations have damaged credibility, requiring increased investment in new technologies.
- High attrition rate compared to industry peers, leading to higher training and development costs.
- Gaps in the product range could provide opportunities for new competitors.
- Marketing and positioning of products need improvement to withstand competition.
- Limited success in expanding beyond the core business due to the current culture.
- The organizational structure is only compatible with the present business model, limiting expansion.
- Inefficient financial planning and cash utilization.
External Strategic Factors:
Opportunities
- Expand polyolefin encapsulate film capacity.
- Leverage global leadership in innovation performance.
- Increased demand for renewable energy, conservation, and agricultural productivity.
- Divest non-core assets to accelerate value creation.
- New market opportunities due to government agreements and technology standards.
- Stable free cash flow for investment in adjacent product segments and new technologies.
- Market development can dilute competitors’ advantages and enhance competitiveness.
- New consumer behavior trends can open up new markets and revenue streams.
- Lower inflation rates provide market stability and lower interest rates.
- Core competencies can lead to success in other product fields.
- Economic uptick and increased customer spending present opportunities to capture new customers and market share.
- New technology enables differentiated pricing strategies and value-oriented propositions.
Threats
- Revenue decline and sensitivity to weakening economic conditions.
- Environmental compliance costs impacting margins.
- Intense competition and potential lawsuits in various markets.
- Rising raw material costs affect profitability.
- The threat of new technologies from competitors or disruptors.
- New environmental regulations under the Paris Agreement.
- Exposure to currency fluctuations and volatile political climates.
- Rising wage levels and increasing prices in China.
- Liability laws vary in different countries.
- Changing consumer buying behavior from online channels impacts the supply chain model.
FinViz Snapshot: https://finviz.com/screener.ashx?v=171&t=DOW
10-Year Historical Price Chart:
https://tvc-invdn-com.investing.com/data/tvc_f690156052f4a5cc616280ca79cda9d5.png
Point & Figure Chart:
https://stockcharts.com/freecharts/pnf.php?c=dow,P
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