Why Does Dow (DOW) get No Love from Analysts?

Dow may be undervalued with strong growth indicators, but the 22 analysts following the company give it an rating of hold. Their target prices range from $47.0 to $70.0 per share, for an average of $58.64. At today's price of $52.85, Dow is trading -9.87% away from its average target price, suggesting there is an analyst consensus of some upside potential for the stock.

Dow Inc., through its subsidiaries, engages in the provision of various materials science solutions for packaging, infrastructure, mobility, and consumer applications in the United States, Canada, Europe, the Middle East, Africa, India, the Asia Pacific, and Latin America. Based in Midland, MI, the large-cap Industrials company has 37,800 full time employees. Dow has provided a 5.3% dividend yield over the last 12 months.

Dow has a trailing twelve month P/E ratio of 8.4, compared to an average of 20.49 for the Industrials sector. Based on its EPS guidance of 4.86, the company has a forward P/E ratio of 10.9.

The average compound growth rate of the company's historical and projected earnings per share is 29.5%. On this basis, the company's PEG ratio is 0.3. However, this growth rate is probably not sustainable. In its place we will use the broader market's estimated 5-year EPS growth rate of 10.8%, which gives us a PEG ratio of 0.82. Even with this more conservative assumption on EPS growth, the PEG ratio suggests that Dow shares are underpriced.

Furthermore, the market is potentially undervaluing Dow in terms of its book value because its P/B ratio is 1.8. In comparison, the sector average P/B ratio is 3.78. The company's shares are currently 8.0% above their Graham number, which suggests that they are not trading at a fair value in terms of earnings and net assets.

2019-12-31 2020-12-31 2021-12-31 2022-12-31
Revenue (MM) $42,951 $38,542 $54,968 $56,902
Revenue Growth n/a -10.27% 42.62% 3.52%
Gross Margins 14.6% 13.5% 19.6% 15.0%
Gross Margins Growth n/a -7.53% 45.19% -23.47%
Operating Margins 8.2% 6.6% 14.4% 10.0%
Operating Margins Growth n/a -19.51% 118.18% -30.56%
Net Margins -3.16% 3.18% 11.48% 8.05%
Net Margins Growth n/a 200.63% 261.01% -29.88%
Earnings Per Share -$1.84 $1.64 $8.38 $6.28
EPS Growth n/a 189.13% 410.98% -25.06%
Diluted Shares (MM) 742 742 749 708
Free Cash Flow (MM) $3,960 $4,839 $4,685 $5,417
FCF Growth n/a 22.2% -3.18% 15.62%
Capital Expenditures (MM) -$1,970 -$1,387 -$2,324 -$2,058
Net Debt / EBITDA 5.19 2.19 1.04 1.27
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.