Will Dow Chemical (DOW) Beat Earnings Estimates? - Analyst Blog

We expect U.S. chemical kingpin Dow Chemical DOW to beat earnings expectations when it reports its first-quarter 2014 results ahead of the opening bell on Apr 23. Last quarter, it racked up a roughly 51% positive surprise.

Why a Likely Positive Surprise?

Our proven model shows that Dow has the right combination of two key ingredients to beat earnings.

Positive Zacks ESP: The Earnings ESP (Expected Surprise Prediction) for Dow is +1.43% - the difference between the Most Accurate estimate of 71 cents and the Zacks Consensus Estimate of 70 cents. This indicates a likely positive earnings surprise.

Zacks Rank #3 (Hold): Dow's Zacks Rank #3 increases the predictive power of its ESP. The combination of its Zacks Rank and Earnings ESP makes us confident of a positive earnings surprise in the first quarter.

Note that stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.   

Expected Earnings Drivers

Dow has beaten the Zacks Consensus Estimate in 3 of the trailing 4 quarters with an average beat of 15.09%. It is gaining from strength in agriculture market which should drive its earnings in the first quarter as did in the sequentially prior quarter. Strong momentum in its agriculture business is driven by higher demand for crop protection products.

Moreover, healthy fundamentals are expected to continue in Dow's performance plastics business in the March quarter, lending support to its results. The company's performance in fast-growing emerging markets is also expected to remain strong in the quarter. Dow is also expected to benefit from its cost-reduction initiatives and restructuring measures.

However, an expected rise in hydrocarbon energy costs, triggered by harsh winter weather, may put some pressure on margins in the first quarter.

Other Stocks to Consider

Dow is not the only firm looking up this earnings season. We also see likely earnings beats coming from these chemical companies.

Huntsman Corporation HUN has earnings ESP of +2.50% and retains a Zacks Rank #2 (Buy).

Eastman Chemical Co. EMN has earnings ESP of +5.00% and holds a Zacks Rank #3 (Hold).

Compass Minerals International Inc. CMP has earnings ESP of +0.71% and sports a Zacks Rank #3 (Hold).