After A Downgrade In June, Dow Chemical Back To Overweight For JPMorgan

"The reports of our chemical companies concerning order patterns and business conditions in July suggest that European recessionary conditions are not a base case, and that global demand is holding up generally well," analyst Jeffrey Zekauskas wrote in a note.

The analyst still believes Dow Chemical/E I Du Pont De Nemours And Co DD could be "a large free cash generator over a longer period of time as Dow's capital expenditures move substantially lower." Further, the company is expected to benefit from significant capacity expansions and efforts to achieve cost reduction in the consolidation of the companies.

Related Link: Du Pont's Beat Doesn't Take Barclays' Focus Off Dow Deal

Zekauskas noted that Dow was able to maintain a level EBITDA year-over-year in the second quarter significantly due to its cost reduction efforts and by running capacity of ethylene and derivatives at reasonable rates.

The analyst added, "Should Dow meet its target of an incremental $400 million in equity income from Sadara, the benefit would be an additional $0.35 per share.

"It may be the case that Dow's earnings can easily rise above $4.00 annually from a reasonable functioning of Sadara. It is easy to forget that Performance Materials and Performance Plastics equity income combined were $579 million in 2014 and are likely to be $75 million in 2016," Zekauskas elaborated.

Zekauskas raised his price target on the stock by $10 to $60, while shares of Dow were currently up 0.48 percent to $53.93.

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