DOW  Stock Forecast: Betting on ESG

Yuxiao YangThis DOW Stock Forecast article was written by Yuxiao Yang – Financial Analyst at I Know First.

Highlight

  • Dow expects to grow capacity and underlying earnings by more than $3 billion per year while reducing CO2 emissions by 30%.
  • The ROE of the company is 41.28% that higher than 94.76% of the companies in the Chemical industry.
  • The Piotroski F-Score provides a positive outlook for Dow’s stocks with a score of 9.
What is ESG Investing? | Is it useful as part of a portfolio?
(Source: spectrum-ifa.com)

Overview

In 1897, The Dow Chemical Company began as a one-product start-up founded by H.H. Dow. Today, Dow has grown into a materials science company providing a wide range of materials science solutions for packaging, infrastructure, mobile, and consumer applications in the United States, Canada, Europe, the Middle East, Africa, India, Asia Pacific, and Latin America. It operates through three business segments: Performance Materials & Coatings, Industrial Intermediates & Infrastructure, and Packaging & Specialty Plastics. The Performance Materials & Coatings segment includes industry franchises that provide a broad range of solutions for consumer and infrastructure end markets. The division comprises two global businesses: Coatings & Performance Monomers and Consumer Solutions. These businesses leverage Dow’s acrylic, cellulose, and silicon technology platforms to meet the needs of the architectural and industrial coatings, home care, and personal care end markets. (WSJ)

Maintaining the Strong Growth

According to the most recent 10-Q, Dow reported net sales in Q1 2022 of $15.3 billion, an increase of 28 percent from $11.9 billion in the first quarter of 2021, with increases across all operating segments and geographic regions. The company generated strong operating cash flows of $1.6 billion in Q1 2022, it also generated a non-GAAP free cash flow of $12.97 billion in Q1 2022. On February 10, 2022, Dow Inc. announced that its Board of Directors declared a dividend of $0.70 per share, which was paid on March 11, 2022, to shareholders of record as of February 28, 2022. This dividend payment sends a positive signal of management’s confidence in the company’s prospects to current shareholders and potential investors. At the same time, Dow repurchased $600 million of the Company’s common stock in the first quarter of 2022. The company is committed to returning value to its shareholders by generating healthy cash flows.

The company set a win-win blueprint with increasing earnings and completing ESG goals. Dow Expects to grow capacity and underlying earnings by more than $3 billion per year while reducing CO2 emissions by 30%. Through Higher-Return, Lower-Risk, and Faster-Payback Capital Investments,  Dow plan to add $1B billion of EBITA per year. These attractive projects include the Fort Saskatchewan cracker expansion, Silicones downstream debottlenecking projects, C2/PE and functional polymers incremental projects, etc. The company completed 16 silicones incremental expansion projects in 2019, It is currently executing a number of downstream silicones expansion projects to lower merchant siloxane intermediate exposure and provided additional downstream capability.

*Data source: gurufocus.com
(Figure 1: DOW vs Chemical Industry)

According to GuruFocus, DOW outperformed most of the companies in the Chemical industry.DOW’s ROE is 41.28% that better than 94.76% of companies in the Chemicals industry. The Operating Margin is 15.06%, which is higher than 72.00% of companies in the industry. Moreover, the company actively distributes money to its shareholders through dividends and share buybacks.

Data source: gurufocus.com
(Figure 2: Valuation Ratios for DOW and Its Peers)

Let’s look at the next comparable companies: CE, EMN, HUN, and UNVR. Currently, DOW’s P/E and P/S ratios are 7.41 and 0.87 that lower than the average values of 10.01 and 1.07, respectively.

*Data source: gurufocus.com

The Altman Z-score, which determines the result of a credit test, stays in the Grey zone. At the same time, DOW looks interesting in terms of the Piotroski F-Score. Piotroski F-score is a number between 0 and 9 that is used to assess the soundness of a company’s financial position. A score of 9 may indicate that the company’s stock is undervalued and can be interpreted by investors as a good signal to buy the stock.

Conclusion

DOW‘s leading position in the industry and strong financial performance show a clear signal that DOW is a buy stock. Dow expects to grow capacity and underlying earnings by more than $3 billion per year while reducing CO2 emissions by 30%. Through Higher-Return, Lower-Risk, and Faster-Payback Capital Investments, Dow plan to add $1 billion of EBITA per year. In addition, Dow looks promising in the context of the Piotroski F-Score with the current score of 9.

It is worth paying attention that the stock-picking AI of I Know First has a high signal on the one-year market trend forecasts, supporting my position for the DOW stock forecast. The light green for the short-term forecasts is mildly bullish, while the darker green is a strong bullish signal for the one-year forecast.

Past Success with DOW Stock Forecast

I Know First has been bullish on the DOW stock forecast in the past. On February 25th, 2022 the I Know First algorithm issued a forecast for DOW stock price and recommended DOW as one of the best stocks to buy. The AI-driven DOW stock prediction was successful on a 1-month time horizon resulting in more than 10.18%.

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Please note-for trading decisions and use the most recent forecast.