JPMorgan cuts Dow stock rating amid global economic concerns

On Friday, JPMorgan analysts downgraded Dow Inc. (NYSE:DOW) stock from Overweight to Neutral, adjusting the price target to $31.00 from the previous $40.00. The stock, which InvestingPro analysis suggests is currently undervalued, has fallen to $31.46, near its 52-week low of $31.38. The downgrade is attributed to multiple factors impacting the company’s earnings before interest, taxes, depreciation, and amortization (EBITDA), including weak demand in China and Europe, increased global capacity, higher interest rates, and a sluggish global economy.

Dow Inc., a leading global petrochemical company and the world’s largest producer of ethylene and polyethylene, is facing challenges that have led to a reduction in its EBITDA to $5.07 billion. With a market capitalization of $22.2 billion and a debt-to-equity ratio of 1.02, the company operates with a significant debt burden. JPMorgan highlighted the company’s high dividend yield of 8.9%, which is considered cyclically low in earnings profile and leveraged to lower interest rates. The firm noted Dow’s value is particularly sensitive to changes in global economic activity, with rising recessionary risks that could significantly affect the company’s share price and EBITDA.

According to JPMorgan’s analysis, a $10 per barrel change in the price of Brent crude oil could result in approximately a $1 billion impact on Dow’s annual EBITDA. The volatility and uncertainty in Dow’s quarterly EBITDA have also raised concerns about the sustainability of its high dividend yield. InvestingPro data reveals weak gross profit margins of 10.9%, with 12 additional key insights available to subscribers through their comprehensive Pro Research Report.

In light of these factors, JPMorgan has revised its outlook on Dow shares, moving from a positive Overweight rating to a more cautious Neutral stance for the year ahead. This change reflects the firm’s expectation of Dow’s year-ahead performance given the current economic environment and the specific challenges faced by the petrochemical industry. Investors seeking deeper insights into Dow’s valuation and future prospects can access detailed analysis through InvestingPro’s comprehensive research tools and expert reports.

In other recent news, Dow Inc. has completed the issuance of $1 billion in new notes, consisting of $400 million of 5.350% notes due in 2035 and $600 million of 5.950% notes due in 2055. This financial move provides the company with additional capital and underscores its active management of capital structure. Separately, Dow has initiated a cash tender offer to repurchase up to $1 billion of its own debt securities, as well as those of its subsidiaries, with the offer set to expire later in March 2025. This action is contingent on securing sufficient funding through new debt securities issuance. In terms of dividends, Dow announced its 454th consecutive dividend of 70 cents per share, to be paid in March 2025. The company continues to emphasize its long-standing tradition of returning value to shareholders. On the analyst front, CFRA downgraded Dow’s stock rating from Hold to Sell, adjusting the price target to $28.00 from $37.00, citing concerns over fundamentals and regulatory risks. These recent developments reflect Dow’s ongoing efforts to manage its financial health and market position amidst evolving economic conditions.

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