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On Tuesday, BofA Securities issued a downgrade for Dow Inc. (NYSE:DOW) shares, shifting from a Buy to an Underperform rating, accompanied by a significant reduction in the price target to $28 from the previous $44. According to InvestingPro data, DOW currently trades at $28.88, with analysts’ targets ranging from $29 to $65, reflecting significant market uncertainty. The stock appears undervalued based on InvestingPro’s Fair Value analysis. The revision reflects a less optimistic outlook on the company’s financial performance due to a combination of deteriorating macroeconomic factors, trade barriers, and increasing feedstock costs in the United States.
Steve Byrne of BofA Securities highlighted that the downgrade was influenced by a "perfect storm" of challenges that Dow is currently facing, which has prompted a revision of the company’s EBITDA forecasts for 2025 and 2026. These estimates have been lowered by 17% and 23% respectively, to $4.8 billion and $5.4 billion. The company’s current EBITDA stands at $5.07 billion, with InvestingPro noting weak gross profit margins of 10.9% and significant debt burden as key challenges. The anticipated macroeconomic and petrochemical sector recovery, which had previously supported a Buy rating, is now expected to be significantly delayed, rendering Dow’s valuation less appealing.
Furthermore, concerns have been raised regarding Dow’s approximately $2 billion annual dividend, which is now considered to be increasingly at risk. The current dividend yield stands at 9.7%, significantly above the company’s 5-year average of 6%. BofA’s analysis suggests that Dow’s free cash flow shortfall for 2025 and 2026 could expand to $2.6 billion, up from the earlier estimate of $1.25 billion. Additionally, the company’s net leverage is projected to approach nearly three times until 2027.
Despite Dow’s stock already experiencing a 19% decline following the tariff announcement on April 2, the financial firm believes that the current valuation does not warrant a positive rating. The revised price objective of $28 reflects these compounded financial pressures and the anticipated challenges that Dow will face in the coming years. InvestingPro data shows the stock has declined 43.15% over the past six months, with 11 analysts recently revising their earnings estimates downward. Get access to 10+ additional exclusive ProTips and comprehensive analysis through InvestingPro’s detailed research reports.
In other recent news, Dow Inc. has made several significant financial moves and faced analyst scrutiny. The company has successfully issued $1 billion in new notes, divided into $400 million of 5.350% notes due in 2035 and $600 million of 5.950% notes due in 2055. This issuance is part of Dow’s strategy to manage its capital structure actively. In a separate development, Dow has launched a cash tender offer to repurchase up to $1 billion of its own debt securities, alongside those of its subsidiaries Rohm and Haas Company and Union Carbide Corporation. The tender offer includes specific securities with acceptance sublimits and is contingent on securing sufficient funding through new debt issuance.
On the analyst front, JPMorgan downgraded Dow Inc.’s stock from Overweight to Neutral, adjusting the price target to $31.00 from $40.00, citing weak demand in China and Europe and increased global capacity. CFRA also downgraded Dow’s stock from Hold to Sell, reducing the price target to $28.00 from $37.00, due to concerns over the company’s fundamentals and projected earnings per share. Both firms highlighted challenges such as tightening regulations and rising natural gas prices, which could impact Dow’s financial health. These developments reflect the complexities Dow faces in navigating the current economic landscape.
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