Investing.com -- RBC Capital Markets downgraded Dow to Sector Perform from Outperform and cut its price target to $28 from $51, saying recent gains in polyethylene prices are likely to prove short-lived while the company's multibillion-dollar Alberta petrochemicals project will continue to strain cash flow.

The downgrade underscores growing skepticism on Wall Street that Dow can sustain its recent earnings recovery after a temporary boost from supply disruptions in the Middle East. Analysts increasingly expect oversupply in global petrochemical markets and sluggish demand to cap pricing, while the company's costly Alberta expansion is seen limiting its ability to return cash to shareholders despite ongoing cost-cutting efforts.

RBC said Dow's second-quarter earnings received a significant lift from supply disruptions following the Iran conflict, but expects those benefits to fade in 2027 as structural oversupply and weak global demand continue to weigh on the petrochemicals market. The brokerage lowered its adjusted EBITDA estimates to $5.30 billion for 2026 and $5.10 billion for 2027, from previous forecasts of $6.0 billion and $6.5 billion, respectively.

The brokerage said hopes that higher prices and feedstock disruptions would trigger permanent petrochemical plant closures in Europe and Asia have largely failed to materialize. Instead, increased Chinese exports and coal-to-olefins production have kept supply elevated, raising the risk that earnings could fall back toward 2024 levels once current pricing support fades.

RBC also highlighted Dow's Alberta cracker project as a major overhang on the company's capital allocation story. The brokerage estimates the project will require about $7.5 billion in gross capital spending, or roughly $6 billion after government incentives, consuming the bulk of Dow's free cash flow through 2030 despite an industry environment that does not require significant new ethylene and polyethylene capacity.

While Dow has delayed the Alberta project, idled European assets, monetized infrastructure and halved its dividend to preserve cash, RBC said elevated capital spending and a weaker dividend profile reduce the likelihood of a higher valuation multiple. It added that peer LyondellBasell is better positioned to return capital to shareholders as its major investment cycle is largely complete.

RBC noted that Dow's cost-cutting initiatives could deliver roughly $1.6 billion in cumulative savings, but said those efforts are unlikely to fully offset the effects of weak demand and persistent industry overcapacity.

The brokerage said its $28 price target is based on a 6-times multiple of its 2026 EBITDA estimate and reflects expectations that earnings will soften in the second half of 2026 as pricing returns toward mid-cycle levels.