Dow Chemical Strikes New 52-Week High - Analyst Blog

Shares of Dow Chemical DOW clocked a new 52-week high of $52.55 on May 29, eclipsing its previous high of $51.84. Its shares pulled back a bit to end the day at $52.47.

 

The U.S. chemical giant, which has a market cap of roughly $62.5 billion, has seen its shares pop roughly 19% year-to-date and 55% over a year. Average volume of shares traded over the last three months is around 8,389K.

 

What's Driving DOW Up?

 

Shares of Dow are heading higher following its buoyant first-quarter 2014 results, reported on Apr 23. Dow's profit shot up 75% year over year in the quarter on strength across its coatings and plastics businesses, supported by gains from emerging markets (led by China). Earnings of 79 cents per share topped the Zacks Consensus Estimate by 9 cents.

 

Dow saw higher margins across its key businesses in the quarter despite the impact of inclement weather and a more than $300 million spike in hydrocarbon costs.

 

Dow, a Zacks Rank #3 (Hold) stock, is well placed to reap the benefits of strong fundamentals across agriculture and food markets. A string of innovative products in its pipeline adds to its strength.

 

Moreover, Dow is leveraging its North American feedstock advantage. The company's investments in U.S. Gulf coast and Middle East are focused on boosting this advantage. Dow's PDH unit in Freeport, TX, is expected be fully operational by mid-2015. The unit is expected to benefit from favorable propane to propylene spread.

 

In addition, Dow remains focused on offering incremental returns to its shareholders leveraging its healthy cash flows. The company, during the first quarter, raised its quarterly dividend by 15% to 37 cents per share. Dow returned $1.7 billion to its shareholders through dividends and share repurchases during the quarter.

 

Dow also continues its cost-reduction efforts under its “Efficiency for Growth” program. Its cost-containment measures and restructuring initiatives are expected to fetch combined annual savings of $2.5 billion.

 

That said, we account for the weakness across Dow's performance materials and feedstocks and energy businesses. Moreover, the company faces challenges in Western Europe and from a still soft construction end market.

 

Other Stocks to Consider

 

Other companies in the chemical space that are worth considering include Compass Minerals International Inc. CMP, L'Air Liquide SA (AIQUY) and PetroLogistics LP PDH. While Compass Minerals retains a Zacks Rank #1 (Strong Buy), both L'Air Liquide and PetroLogistics sport a Zacks Rank #2 (Buy).