Citi upgrades US Dow after sequential gains, accelerated cuts

30 July 2009 21:15  [Source: ICIS news]

HOUSTON (ICIS news)--Citi upgraded US major Dow Chemical to “buy” from “hold” behind improving sequential volumes and accelerated cost cutting, the research firm said on Thursday.

Dow reported earnings of 5 cents/share, beating Citi’s expectations of a loss of 5 cents/share, due to improved volumes in electronics and coatings, lower raw material costs and continued cost cutting, Citi said.

“At critical inflection points in the economy, sequential trends matter more than year-over-year changes,” Citi analyst PJ Juvekar said. “Although Dow’s volumes and prices were down 20%, volumes improved 5% sequentially, its first gain in a year.

“Operating rates improved 7% to 75% globally,” he added.

Citi also said Dow was “very adept at cost cutting”, and praised CEO Andrew Liveris for his role in the massive cost-cutting programme in 2001-02 when Dow acquired Union Carbide.

“The company is likely to accelerate its effort this time given the financial urgency and a deeper recession,” Juvekar said.

Citi said Dow had been “quick on its feet” to divest several assets, calling the company’s sale of Morton Salt, its stakes in the TRN refinery and Optimal olefins, glycols and chemicals joint ventures and its calcium chloride business as an “upside surprise”.

Those divestments add up to about $3.3bn (€2.3bn), Citi said, and puts Dow ahead of schedule in paying a bridge loan put in place for the company’s acquisition of Rohm and Haas.

Even so, Citi continued to label Dow as “high risk”, citing the global recession, the substantial amount of debt raised for the Rohm and Haas acquisition and risks in commodity businesses from the new wave of Middle East capacity.

Dow surged to $21.98/share in mid-day trading on the New York Stock Exchange, up $1.71, or 8.4%.

Citi’s 12-month price target for the stock is $27/share.

($1 = €0.71)

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By: Ben DuBose
+1 713 525 2653



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