Dow Chemical (DOW) reached a new 52-week high of $35.06 on May 9, eclipsing its previous high of $34.83. Its shares clocked $34.92 at the end of the trading session on that day.
The U.S. chemical kingpin, which has a market cap of roughly $42 billion, has seen its shares pop roughly 9% year-to-date and 13% over a year. Average volume of shares traded over the last three months is around 7,764K.
What's Driving Dow?
Shares of Dow are heading higher following the company’s handy earnings beat in first-quarter 2013, reported on Apr 25. Dow’s profit soared 33% in the quarter on strength in its agriculture business, buoyed by healthy demand from farmers. The company registered record sales of seeds and crop protection products.
Dow racked up profit of $550 million or $0.46 a share compared with $412 million or $0.35 a share earned a year ago. The company also benefited from a nearly $300 million decline in raw material costs in the reported quarter.
Barring one-time items, the company earned $0.69 a share in the quarter, up from $0.61 a year ago. That trounced the Zacks Consensus Estimate of $0.60.
However, sales fell 2% in the quarter as gains across agricultural sciences and electronic and functional materials were marred by declines in other businesses.
Dow is well placed to reap the benefits of strong fundamentals across agriculture and food markets. A string of innovative products in its pipeline adds to its strength.
Moreover, Dow is seeing significant feedstock advantage in North America. The company’s investments in U.S. Gulf coast and Middle East are focused on boosting this advantage.
In addition, Dow remains focused on offering incremental returns to its shareholders leveraging its healthy cash flows. The company offers a healthy dividend yield of 3.7%.
Dow also continues debt repayments having reduced its debt by over $900 million in the first quarter. Moreover, it continues its cost-reduction efforts under its “Efficiency for Growth” program. Dow’s cost-containment measures and restructuring initiatives are expected to fetch a combined annual savings of $2.5 billion with $1 billion expected this year.
That said, we account for the weakness across electronics and construction end-markets. Moreover, Dow still faces challenges in Western Europe due to the difficult economic conditions and is exposed to significant pension headwinds. As such, the stock currently keeps a short-term (1-3 months) Zacks Rank #3 (Hold).
Other Stocks to Consider
Other companies in the chemical space that are worth considering include Shin-Etsu Chemical Co., Ltd. (SHECF), Celanese Corporation (CE) and FMC Corp. (FMC). While Shin-Etsu Chemical retains a Zacks Rank #1 (Strong Buy), both Celanese and FMC hold a Zacks Rank #2 (Buy).
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