CFRA cuts Dow stock rating to sell, target to $28 from $37

On Thursday, CFRA announced a downgrade of Dow Inc. (NYSE:DOW) stock from Hold to Sell, adjusting the price target to $28.00, a decrease from the previous $37.00. The stock, currently trading at $36.61, sits near its 52-week low of $35.48, according to InvestingPro data, which also indicates the company is trading below its Fair Value. The research firm justified its decision by pointing to a reduction in their 12-month target, based on a forward price-to-earnings (P/E) ratio of 11.5 times their projected 2026 earnings per share (EPS) of $2.45, which represents a $0.77 cut. This new target P/E ratio is below Dow’s three-year average of 12.2 times.

The downgrade reflects concerns over the company’s fundamentals. CFRA has also revised its 2025 EPS forecast downward by $0.46 to $1.81. Despite these concerns, InvestingPro data shows Dow maintains a substantial 7.53% dividend yield and trades at an attractive PEG ratio of 0.26, suggesting potential value for income-focused investors. The platform offers 8 additional key insights about Dow’s investment potential. The firm cited ongoing tariff concerns and the recent appointment of RFK Jr. as U.S. Health Secretary as factors that could negatively impact Dow’s sales and margin estimates for the years 2025 and 2026.

CFRA analysts believe that tightening regulations around chemicals could pose long-term risks to Dow’s operations, particularly given that approximately 38% of Dow’s total sales are estimated to come from plastics and plastic packaging. The analysts also pointed to margin pressure from expected increases in natural gas prices, which are forecasted to rise by 91% in 2025, and a predicted 8% drop in Brent oil prices, which could affect the pricing of various Dow products.

The outlook on Dow’s financial health was further dampened by projections of declining free cash flow (FCF). CFRA estimates that Dow’s adjusted FCF will fall to negative $37 million in 2024, a stark contrast to the $2.8 billion recorded in 2023. InvestingPro’s comprehensive analysis confirms these cash flow challenges, with current levered free cash flow at -$354 million. For deeper insights into Dow’s financial health and over 30 key financial metrics, investors can access InvestingPro’s detailed research report, part of its coverage of 1,400+ US stocks. Concerns were also raised regarding Dow’s long-term solvency ratios, with adjusted earnings before interest and taxes (EBIT) to interest expense at 3.2 times, which is below the industry average, and net debt to adjusted EBIT at 5.8 times, which is above the average of Dow’s peers.

In other recent news, Dow Inc. and its subsidiary, The Dow Chemical Company, have completed the issuance of $1 billion in new notes. This financial move included $400 million of 5.350% notes due in 2035 and $600 million of 5.950% notes due in 2055, managed by underwriters such as BofA Securities and Mizuho (NYSE:MFG) Securities. Additionally, Dow Chemical has launched a $1 billion debt buyback offer targeting its own debt securities and those of its subsidiaries Rohm and Haas Company and Union Carbide Corporation. This tender offer is contingent on securing sufficient funding through the issuance of new debt securities. Dow has also announced a quarterly dividend of 70 cents per share, marking its 454th consecutive dividend. The company continues to maintain its financial structure and commitment to shareholder returns. Furthermore, Dow Inc. and The Dow Chemical Company have filed an administrative SEC filing to incorporate certain documents into their Annual Report on Form 10-K. These developments reflect Dow’s active management of its capital structure and its ongoing efforts to streamline administrative processes.

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