Meet The New Dow, Same As The Old Dow: BMO Bullish After Spin-Off, Sees Similar Positives

BMO Capital Markets is taking a bullish stance on the newly spun-off Dow Inc. DOW, which began trading Tuesday after being split from parent DowDupont Inc. DWDP.

Investors also appeared to like the new Dow, which is replacing its former parent company in the Dow Jones Industrial Average, as its share price quickly rose.  

The Analyst

BMO’s John McNulty initiated coverage of the new Dow with an Outperform rating and $64 target price.

BMO maintained an Outperform rating on former parent DowDupont and dropped the target price from $67 to $46. 

The Thesis

The new Dow looks similar to its bigger predecessor, with the same industry-leading assets, McNulty said in the Tuesday initiation note. A stronger management focus on return, capital discipline and a large shareholder dividend should be better for investors than the previous company, he said. 

Dow, a highly diversified materials company that is an industry leader in plastics and ethylene, has told investors and analysts the new company’s focus will be on cost-cutting, capital discipline and returning significant cash to shareholders, the analyst said. 

DowDuPont was born in 2017 with the merger of Dow Chemical and DuPont. Plans to break up the company were announced last year. 

McNulty also remains bullish on the remaining company, saying he expects DowDupont to outperform the rest of the chemical sector in 2019.

Near-term volatility is likely after the split, but “when the dust settles we believe all businesses will be important investment vehicles that will create shareholder value as we progress through 2019,” the analyst said. 

BMO views DowDuPont as an undervalued stock that will “materially appreciate” through 2019, McNulty said. 

Price Action

The new Dow stock was up 4.67 percent at $56 at the time of publication Tuesday, while DowDuPont was up .07 percent at $36.63. 

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