Dow Inc (NYSE:DOW) has been downgraded to ‘Underperform’ from ‘Buy’ by Bank of America analysts who pointed to a “perform storm” for the chemicals producer amid a deteriorating macroeconomic backdrop, rising feedstock costs, and new trade barriers.
They also reduced their price target to $28 from $44. Shares traded hands at $28, down 2.9%, on Tuesday afternoon.
“Our prior ‘Buy’ rating on Dow was driven by our view that the company had significant leverage to a macro/petrochemicals recovery in the next couple of years,” analysts wrote.
“With a recovery pushed back significantly, valuation no longer appears attractive.”
Dow’s exposure to cyclical sectors like housing, construction, and autos is expected to pressure earnings amid a global slowdown, they added.
They noted that about half of the company’s polyethylene sales are exported, with China, now imposing steep tariffs, accounting for more than 20% of those shipments.
Despite some potential easing in US feedstock costs due to lower demand and export volumes, Bank of America sees continued earnings headwinds.
The analysts sharply reduced their EBITDA estimates for Dow, now forecasting $4.8 billion in 2025 and $5.4 billion in 2026, down 17% and 23, respectively, from previous forecasts.
They see a significant shortfall in free cash flow, estimating a $2.6 billion gap over 2025 to 2026, compared to $1.25 billion previously. This raises analyst concerns about the sustainability of Dow’s $2 billion annual dividend.