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Investing.com -- Shares of Dow Inc (NYSE:DOW) dropped 2% as BofA Securities analyst Steve Bryne double-downgraded the company from Buy to Underperform with a price objective (PO) of $28, citing concerns over lower earnings and potential dividend risk. The downgrade comes in light of a "perfect storm" of challenges, including a weakening macroeconomic environment, trade barriers, and rising U.S. feedstock costs.
Bryne's analysis led to a significant reduction in EBITDA estimates for 2025-26 by 17% and 23% to $4.8 billion and $5.4 billion, respectively. This adjustment reflects the expectation of a delayed recovery, making the stock's valuation less attractive. The analyst also highlighted the risk to Dow's approximately $2 billion annual dividend, with a projected free cash flow shortfall increasing to $2.6 billion from $1.25 billion previously and net leverage moving to almost 3x until 2027.
The downgrade follows a 19% decline in Dow's stock since the April 2nd tariff announcement. The company, with significant exposure to cyclical end markets such as housing, construction, and autos, is expected to face earnings pressure as the global economy slows. Additionally, around 30% of Dow's revenue is tied to the stable packaging business, but the U.S. is a large net exporter of polyethylene—with China accounting for over 20% of these exports—now facing steep tariffs.
Bryne stated, "We are lowering our estimates reflecting lower volumes and weaker margins across the board. For US polyethylene in particular we now assume that prices increase by 1cpp in each of the next three months (vs CMA’s 3cpp April price increase projection) and decline towards the end of the year. Our more conservative forecast is driven by expectations of softening demand and already elevated inventories."
The revised earnings estimates and the potential impact on dividends reflect a more bearish outlook for Dow's financial performance in the coming years. As the market processes these updates, investors are responding to the heightened risks and adjusted growth expectations for the company.
