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Here's Why Dow (DOW) Is a Solid Investment Option Right Now

Zacks Equity Research
·4-min read

Dow Inc.’s DOW stock looks promising at the moment. The company’s shares are up 23% over the past three months. It is benefiting from cost synergy savings and productivity initiatives and investment in high-return projects.

We are positive on the company’s prospects and believe that the time is right for you to add the stock to the portfolio as it looks promising and is poised to carry the momentum ahead.

Let’s delve deeper into the factors that make this Zacks Rank #1 (Strong Buy) stock an intriguing choice for investors right now.

Price Performance

Shares of Dow have rallied 45.7% over the past six months against the 33.8% rise of its industry. It has also outperformed the S&P 500’s 21.3% rise over the same period.

 

 

Estimates Northbound

Earnings estimate revisions have the greatest impact on stock prices. Over the past two months, the Zacks Consensus Estimate for Dow for the current year has increased 42.2%. The consensus estimate for 2021 has also been revised 13.3% upward over the same time frame.

Positive Earnings Surprise History

Dow has outpaced the Zacks Consensus Estimate in each of the trailing four quarters. In this time frame, it has delivered an average earnings surprise of roughly 18%.

Capital Allocation

Dow remains committed to return value to its shareholders by leveraging healthy cash flows. Dow generated strong operating cash flows from continuing operations of $1.8 billion in the third quarter of 2020. It also generated free cash flow of $1.5 billion in the quarter. The company also returned $518 million in dividends to its shareholders in the third quarter. Dow is also taking actions to further strengthen its financial position.

Growth Drivers in Place

Dow should gain from cost synergy savings and productivity actions. It focuses on maintaining cost and operational discipline through cost synergy as well as stranded cost-removal initiatives.

The company is taking actions to cut operating expenses by $500 million through additional structural cost actions, which is expected to lend support to its earnings in 2020. It also expects to realize more than $300 million annualized EBITDA benefit by the end of next year from a restructuring program being initiated in the third quarter of 2020. This includes a 6% reduction in its global workforce and actions to exit uncompetitive assets.

Dow is also benefiting from higher demand for its materials across healthcare and packaging markets, thanks to the coronavirus pandemic. The outbreak has led to a surge in demand for health, hygiene and safety products. The company is also seeing improved demand across furniture & bedding, appliances, packaging, construction and automotive end markets. Dow expects the rebound that it witnessed in its markets in the third quarter to continue in the near term.

Moreover, the company remains committed to invest in attractive areas through highly accretive projects. It is investing in several high-return growth projects including the expansion of downstream silicones capacity.

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Dow Inc. Price and Consensus

 

Dow Inc. Price and Consensus
Dow Inc. Price and Consensus

Dow Inc. price-consensus-chart | Dow Inc. Quote

 

Stocks to Consider

Other top-ranked stocks worth considering in the basic materials space include BHP Group BHP, Silvercorp Metals Inc. SVM and Pretium Resources Inc. PVG.

BHP Group has a projected earnings growth rate of 31.3% for the current fiscal year. The company’s shares have gained around 11% in a year. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Silvercorp has an expected earnings growth rate of 40% for the current fiscal. The company’s shares have gained around 20% in the past year. It currently carries a Zacks Rank #2.

Pretium Resources has an expected earnings growth rate of 25.5% for the current year. The company’s shares have gained around 16% in the past year. It currently carries a Zacks Rank #2.

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BHP Group Limited (BHP) : Free Stock Analysis Report
 
Pretium Resources, Inc. (PVG) : Free Stock Analysis Report
 
Dow Inc. (DOW) : Free Stock Analysis Report
 
Silvercorp Metals Inc. (SVM) : Free Stock Analysis Report
 
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Zacks Investment Research