Dow (DOW) Shares Slammed on Downgrade at Credit Suisse on Overearning Concerns

Credit Suisse analyst John Roberts downgraded Dow Inc. (NYSE: DOW) to Underperform from Neutral, Wednesday, reducing the firm's price target on the stock to $49 from $67. The rating action has sent shares down 6% in mid-day trading.

The analyst cited concerns that US basic chemical producers are overearning, just as there appears to be a consumer shift away from goods to services.

"The pandemic was the first recession where polyethylene demand went up. Until recently, consumers appeared to be overspending on goods relative to services. The past several quarters also benefitted from industry capacity additions delayed by the pandemic, and weather & China curtailments of operations," said Roberts. "We believe these factors could be reversing. And channel inventories downstream from Dow are not well tracked, but that could also present a risk as supply chains normalize."

Roberts added that the firm's 2023-2024 estimates reflect consultant/consensus views of a continued wide US gas liquids advantage vs. overseas oil-based operations. However, they believe that should be discounted more given uncertainty on how oil & gas prices will respond to a slowdown.

The analyst acknowledged that the key risks to the downside view are stronger demand growth and higher oil prices that would benefit Dow's commodity businesses.

By Sam Boughedda

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