On Friday, Citi revised its price target for Dow Inc. (NYSE:DOW), reducing it to $52 from the previous $54, while retaining a Neutral stance on the stock. The adjustment follows Dow's announcement that it has lowered its third-quarter operating EBITDA forecast to approximately $1.3 billion, which falls short of the consensus estimate of about $1.5 billion. The shortfall is attributed to operational disruptions and margin pressures.
Dow Inc. recently updated its third-quarter earnings guidance, citing a decrease due to an outage at its Texas ethylene cracker that began in late July and is expected to resume operations later this month. Additionally, the company has faced margin compression in Europe due to weaker-than-anticipated demand.
Despite these challenges, Dow anticipates the fourth quarter of 2024 to adhere to typical seasonal patterns, potentially balanced by favorable North American pricing dynamics, reduced feedstock costs for Performance and Specialty Plastics (P&SP), lower costs associated with turnarounds, higher operating rates, and improved weather conditions.
Citi's updated estimates for Dow's third-quarter EBITDA are now approximately $198 million lower, totaling $1,333 million. The most significant revisions were made to the P&SP segment, with an estimated decrease of around $130 million in EBITDA, which is attributed to lost sales and increased expenses from spot purchases.
The Industrial Intermediates & Infrastructure (II&I) segment also saw a reduction of approximately $51 million due to weaker sales, stemming from the Glycol-2 unit's slow ramp-up and softness in mobility-related markets. Furthermore, the Performance Materials & Coatings (PM&C) EBITDA estimate was lowered by around $16 million, reflecting weaker seasonal demand.
The company's revised guidance and the subsequent adjustments by Citi reflect the impact of operational issues and market conditions on Dow's financial performance heading into the final quarter of the year. Dow Inc. is navigating through a period of decreased demand in Europe and operational setbacks, while also looking forward to potential improvements in the coming quarter.
In other recent news, Dow Inc. has revised its third-quarter earnings and revenue forecasts due to an unplanned outage at its Texas facility and economic pressures in Europe.
The company now expects revenue of approximately $10.6 billion and operating EBITDA of around $1.3 billion, down from earlier projections. This revised forecast has led to RBC Capital and BMO Capital Markets adjusting their price targets for Dow to $55 and $57 respectively, while maintaining their ratings on the stock.
In response to these changes, Dow has announced a quarterly dividend of 70 cents per share, continuing its long-standing tradition of rewarding shareholders. Despite the downward revision in earnings and revenue, Dow's CEO Jim Fitterling remains optimistic, citing improved pricing and feedstock costs in North America's Packaging (NYSE:PKG) & Specialty Plastics sector as partial offsets to the negative impacts.
InvestingPro Insights
As Dow Inc. (NYSE:DOW) faces operational and market challenges, it's noteworthy to consider key financial metrics and insights provided by InvestingPro. With a market capitalization of $35.23 billion, Dow is trading at a price-to-earnings (P/E) ratio of 31.06, which suggests a higher valuation compared to some industry peers. However, the adjusted P/E ratio for the last twelve months as of Q2 2024 stands at a more moderate 20.8, indicating potential value for investors looking beyond short-term volatility.
Dow's commitment to shareholder returns is evident through a significant dividend yield of 5.57%, which is particularly attractive in the current investment landscape. Additionally, InvestingPro Tips highlight that the management's aggressive share buyback strategy and the expectation of net income growth this year could signal confidence in the company's financial health and strategic direction. With Dow trading near its 52-week low, there may be opportunities for investors considering entry points based on long-term prospects.
Investors should note that Dow is a prominent player in the Chemicals industry, which may provide some stability despite weak gross profit margins of 11.78%. For those seeking further insights, InvestingPro offers additional tips on Dow Inc., which can be accessed to inform investment decisions. The company's next earnings date is set for October 24, 2024, which will be a pivotal moment for investors to assess Dow's recovery from recent setbacks.
For a more comprehensive analysis and to explore further InvestingPro Tips on Dow Inc., interested readers can visit https://www.investing.com/pro/DOW.
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