Wall Street has subdued reaction to US Dow's Q4 results

03 February 2010 22:12  [Source: ICIS news]

NEW YORK (ICIS news)--Wall Street analysts on Wednesday were subdued in their reaction to US major Dow Chemical’s fourth-quarter earnings and outlook for 2010.

“Dow’s 2010 and 2011 level of earnings per share is likely to be much below mid-cycle earnings of about $3.00. The gap between current earnings and mid-cycle profits is probably an impediment to upward share price movement in 2010,” said JPMorgan analyst Jeffrey Zekauskas in a research note.

The analyst, who maintained his neutral rating on Dow, bumped up his 2010 earnings per share estimate by 25 cents, to $1.25 on a lower expected tax rate, and kept his forecast of $2.25 for 2011.

Dow posted underlying earnings per share of 18 cents in the fourth quarter, beating Wall Street’s consensus of 11 cents.

Net profit came in at $87m (€63m) versus the $1.55bn loss reported in the year-ago period, as sales rose 15% to $12.5bn.

Dow’s fourth-quarter results reflect trends of solid growth in emerging economies and a slower recovery in North America and Europe - trends apparent in the fourth-quarter results of other US chemical companies such as DuPont.Year-over-year volumes in emerging geographies rose 33%. Volumes in China were up 57%, noted BB&T Capital Markets analyst Frank Mitsch, who has a hold rating on Dow.

However, volumes in North America and Europe fell 11% and 4% year over year, respectively.

On a sequential basis, volumes rose in every region except North America, where they declined 1%, Dow said.

“Dow is banking on growth in [emerging market] regions, noting the US and Europe are expected to lag,” Mitsch said.

Dow chairman and CEO Andrew Liveris referred to the economic recovery as a “lazy V”, Mitsch said.

“Our reading of the tea leaves suggests that he was implying that we will not be seeing a V-shaped recovery but rather steady but slow global progress,” he said.

Credit Suisse analyst John McNulty, who has an outperform rating on Dow, called the fourth-quarter performance “decent".

“We remain convinced that Dow offers the greatest upside of any large cap name in chemicals as earnings will be driven by a leaner cost structure, richer than expected R&D pipeline and volume growth tied to the improving economy,” McNulty said.

He maintained his price target of $39 on the stock.

Shares of Dow Chemical rose 1 cent, to $27.58 at the close of trading on Wednesday. The stock closed down $1.06, or 3.7%, to $27.57 on Tuesday after the release of earnings.

($1 = €0.72)

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By: Joseph Chang
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