Commodity chemical company Dow Inc. (DOW) provides various materials science solutions for packaging, infrastructure, mobility, and consumer applications in the United States, Canada, Europe, the Middle East, Africa, India, the Asia Pacific, and Latin America.
It operates through three business segments: Packaging & Specialty Plastics, Industrial Intermediates & Infrastructure, and Performance Materials & Coatings.
In late July, DOW entered into a partnership with BSB Nanotechnology Joint Stock Company, the world's first producer of premium rice husk-based specialty silica, to expand its range of bio-based and low-carbon ingredients for personal care. The company stated the new agreement would help accelerate its commitment to a bio-based offering.
Isabel Almiro do Vale, global marketing and strategy director for DOW Personal Care, said, "This partnership is another significant milestone allowing Dow to expand its portfolio of products that enable eco-conscious claims, prioritizing solutions that deliver high-quality, benefits backed by science."
DOW has lost 16.9% over the past month to close the last trading session at $46.09. The stock has lost 18.7% year-to-date and 18% over the past year. However, Wall Street analysts expect the stock to hit $57.28 in the near term, indicating a potential upside of 24.3%.
DOW's forward EV/S of 0.80x is 40.8% lower than the industry average of 1.36x. Its forward EV/EBITDA of 4.39x is 25.2% lower than the industry average of 5.87x. Also, its forward P/S of 0.57x is 46.4% lower than the industry average of 1.07x, while its forward Price/Cash Flow of 4.28x is 30.8% lower than the industry average of 6.19x.
Here is what could shape DOW's performance in the near term:
Solid Sales
DOW's net sales came in at $15.66 billion for the second quarter ended June 30, 2022, up 12.8% year-over-year. Its Packaging and Specialty Plastics segment's sales came in at $8.23 billion, up 15.6% year-over-year.
Moreover, its Industrial Intermediates & Infrastructure segment's sales came in at $4.37 billion, up 3.7% year-over-year, while the company's Performance Materials & Coatings segment's sales came in at $3 billion, up 21.8% year-over-year.
Favorable Profitability Ratios
DOW's trailing-12-month ROCE, ROTC, and ROTA of 38.30%, 15.97%, and 10.70% are higher than the industry averages of 13.91%, 7.62%, and 5.50%, respectively.
In addition, its trailing-12-month net income margin of 11.06% is 22.4% higher than the industry average of 9.03%.
POWR Ratings Reflect Promising Outlook
DOW has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. DOW has an A grade for Value, consistent with its lower-than-industry valuation multiples. The stock has a B grade for Quality, in sync with its higher-than-industry profitability ratios.
In the 88-stock Chemicals industry, DOW is ranked #33. The industry is rated B.
Click here for the additional POWR Ratings for DOW (Growth, Momentum, Stability, and Sentiment).
View all the top stocks in the Chemicals industry here.
Bottom Line
DOW has witnessed steady sales in the last reported quarter. Moreover, its revenue is estimated to increase 5.6% year-over-year to $58.02 billion in 2022. Also, its revenue and EPS have grown at 8.9% and 38.1% CAGRs, respectively, over the past three years. Therefore, I think the undervalued gem DOW could be an ideal addition to your portfolio.
How Does Dow Inc. (DOW) Stack Up Against its Peers?
While DOW has an overall POWR Rating of B, one might consider looking at its industry peers, Sisecam Resources LP (SIRE), American Vanguard Corporation (AVD), and Valhi, Inc. (VHI), which have an overall A (Strong Buy) rating.
DOW shares were trading at $45.89 per share on Wednesday afternoon, down $0.20 (-0.43%). Year-to-date, DOW has declined -16.17%, versus a -17.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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