Dow Analysts Agree on Value But Debate When to Own the Stock
Dow Analysts Agree on Value But Debate When to Own the Stock
(Bloomberg) -- Dow Inc. -- the "New Dow" -- began trading regularly today, after its spin-off from DowDuPont Inc. The Street agrees that the new company has a sound business model and may reward investors in the long run but the cyclical nature of the sector divides bulls and bears on when to own the stock.
The leading bull is Sanford C. Bernstein analyst Jonas Oxgaard, who has an outperform rating on the stock and Street high price target of $74. He thinks that a tightening ethylene market will yield an up-cycle for the sector in 2020, driving up Dow’s shares. Oxgaard expects the shares to sell off immediately after the spin, which will create a "compelling entry point" for the bulls around mid-to-late April.
Meanwhile, the Street-low price target of $51 comes from Jefferies analyst Laurence Alexander, who initiated research on the stock with a hold rating. He agrees that the "New Dow" is too good to dismiss due to its "robust earnings leverage, less dilution by divergent value chains and better operating discipline." But he thinks that investors should wait for a better entry point as oversupply plus an unfavorable macro environment “make it too late to trade the restock cycle and better ethylene [supply/demand] balances.”
Here are other calls from the bulls and the bears of the Street on the "New Dow:"
Goldman Sachs, Robert Koort
Investors should buy the "New Dow" as the transformation from the "Old Dow" is more shareholder friendly, with a leaner, more focused cost structure.
The company offers "a compelling value opportunity" due to a "best-in-class" estimated dividend yield above 5%, a $3 billion share buyback program and $800 million of targeted cost synergies. Rates Dow a buy, with price target of $71.
Bank of Montreal, John McNulty
The "New Dow" boasts management with focus on returns, capital discipline and shareholder value creation, including an estimated 5.2% dividend. He thinks that it will take a few weeks for the stock to be less volatile, but the company will create significant shareholder value over the next 12 months. Initiated coverage on the stock with an outperform rating and price target of $64.
Fermium Research, Frank Mitsch
Mitsch believes management’s credibility and sees potential for the "New Dow," while acknowledging investor concern that the near-term and continued cracker additions may weigh on the stock in the early days.
Thinks that Dow has a chance to recover from these concerns due to hefty cost savings and capital allocation initiatives. Rates Dow a buy, with price target of $60.
Vertical Research Partners, Kevin McCarthy
Investors are expected to be served well by Dow’s focus on generating cash and returning much of it to shareholders. But industry fundamentals are less appealing than certain financial metrics, at this point in the cycle. McCarthy thinks that valuation for the stock is "decent, but not especially compelling." The stock is rated a hold with price target of $53.
Cowen, Charles Neivert
Dow is expected to see strong headwinds to product pricing and margin expansion for most of 2019, due to slower demand growth and significant capacity gains. The ethylene sector will have an especially difficult time with pricing given the vast expansions still to come, he added. Neivert doesn’t have a rating on the stock, but has a price target of $57.
To contact the reporter on this story: Aoyon Ashraf in Toronto at aashraf7@bloomberg.net
To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Scott Schnipper
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