On Monday, Piper Sandler adjusted its outlook on Dow Inc. (NYSE:NYSE:DOW), increasing the stock's price target to $68 from the prior target of $67, while keeping an Overweight rating on the shares. The adjustment follows a review of the company's performance and its position within the industry, which suggests a potential for earnings growth through the next year and a significant acceleration in 2025.
Dow Inc. is perceived to be in a similar advantageous position as its peers, such as LYB and oil majors, who have recently seen chemical earnings rise due to favorable cost and price environments. The company is expected to see further upside from increased operating rates in most of its regions. This operational leverage is thought to be currently undervalued by the market.
The firm's analysts project a steady improvement in Dow's earnings throughout 2024, with a more substantial increase anticipated in 2025 based on higher operating rates. Piper Sandler's EBITDA estimate for Dow in 2025 stands at $8.1 billion, which surpasses the consensus and, according to the firm, still falls short of what they estimate the midcycle earnings could reach.
The revised price target of $68 is derived from applying an enterprise value to EBITDA (EV/EBITDA) multiple of 7.5 times to the estimated 2025 EBITDA of $8.1 billion. This calculation assumes a net debt of $13.1 billion and a share count of 706 million. The slight increase in the EV/EBITDA multiple from 7.3 times reflects a minor reduction in estimated 2025 earnings but is coupled with a higher confidence in Dow's ability to achieve these targets.
InvestingPro Insights
According to real-time data from InvestingPro, Dow Inc. (NYSE:DOW) is demonstrating financial metrics that could be of interest to investors following Piper Sandler's optimistic outlook. The company's market capitalization stands at approximately $40.29 billion, and while it's trading at a high earnings multiple with a P/E ratio of 34.14, the adjusted P/E ratio for the last twelve months as of Q1 2024 is somewhat lower at 26.43. This suggests that investors are expecting higher earnings in the future, aligning with Piper Sandler's projections of earnings growth.
InvestingPro Tips highlight that management has been aggressively buying back shares, which can often be interpreted as a signal of confidence in the company's future prospects. Moreover, Dow is expected to grow its net income this year, which supports the positive sentiment reflected in the stock's price target increase. With a dividend yield of 4.89% as of the latest data, Dow may also appeal to income-seeking investors. However, it's worth noting that the company suffers from weak gross profit margins, with a gross profit margin of 11.34% for the last twelve months as of Q1 2024.
For investors looking for more detailed analysis and additional insights, InvestingPro offers a range of tips, including information on Dow's position as a prominent player in the Chemicals industry and its trading pattern near the 52-week high. To access these insights and more, consider subscribing to InvestingPro using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With 9 additional InvestingPro Tips available, investors can equip themselves with a comprehensive understanding of Dow's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.