FocusWall Street weighs in on Dow Chemical’s outlook

04 August 2010 17:25  [Source: ICIS news]

Wall Street weighs in on DowBy Joseph Chang

NEW YORK (ICIS)--The sell-off in US major Dow Chemical’s shares following second-quarter earnings that failed to meet analyst estimates has created a buying opportunity, a analyst said on Wednesday, but others were less upbeat.

“With roughly $0.10-$0.12/share of impacts from transitory issues [unplanned outages ($0.07), uncompetitive US propylene prices ($0.03-$0.04), and adverse weather conditions in Ag (agricultural products) ($0.02)], we believe the sell-off creates a unique buying opportunity,” said Deutsche Bank analyst David Begleiter in a research note.

“With cost and growth synergies ahead of schedule, earnings power of over $2.50 in 2011 and $3 in 2012 still intact, and valuation compelling at 10.1 times estimated 2011 earnings per share, we reiterate our ‘buy’,” he added.

On Tuesday, Dow posted second-quarter earnings of 54 cents/share, falling short of the consensus 56 cent estimate. Sales rose 20% year on year to $13.6bn (€10.3bn).

The earnings miss came against the backdrop of higher-than-expected results from most US chemical companies.

On 27 July, DuPont posted earnings per share (EPS) of $1.17, handily beating Wall Street estimates of 93 cents. On 30 July, Eastman Chemical followed up with a second-quarter EPS of $2.05, blowing away Street estimates of $1.65.

PolyOne, Westlake and Arch Chemicals followed up with earnings beats as well.

Begleiter trimmed his 2010 EPS estimate on Dow by 5 cents to $1.65.

Other analysts were not as upbeat, and also slashed profit estimates.

“Dow’s results, in comparison to those of the other major chemical companies, fell short in the areas of revenue growth, business execution and realisation of cost-reduction efforts and business synergies. It seemed a quarter of lost opportunity,’ said JPMorgan analyst Jeffrey Zekauskas in a research note.

The analyst maintained his $1.75 EPS forecast for Dow for 2010, but cut his 2011 estimate by 20 cents to $2.30, and his 2012 number by 40 cents to $3.10 to reflect higher corporate costs and a somewhat slower growth environment.

BB&T Capital Markets analyst Frank Mitch increased his 2010 EPS forecast on Dow by 5 cents to $1.70 on the absence of plant turnarounds and supply disruptions, and kept his 2011 estimate of $2.00 unchanged.

“We reiterate our ‘hold’ rating given concerns on the order of magnitude of Dow’s long-term earnings recovery,” said Mitsch in a research note.

“Integration issues and pending Middle East/Asian capacity additions could hamper near-and mid-term results,” he added.

($1 = €0.76)

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