Dow (DOW) Stock Up 38% in 6 Months: What's Driving the Rally?
Dow Inc.’s DOW shares have popped 37.8% over the past six months. The company has also outperformed its industry’s rise of 24.5% over the same time frame. Moreover, it has topped the S&P 500’s 18% rise over the same period.
Let’s take a look into the factors that are driving this Zacks Rank #2 (Buy) stock.
What’s Favoring the Stock?
Strong fourth-quarter results and upbeat prospects have contributed to the run-up in the company’s shares. Dow’s adjusted earnings of 81 cents per share for the fourth quarter topped the Zacks Consensus Estimate of 69 cents. Net sales of $10,706 million rose roughly 5% year over year on higher volumes and prices and also surpassed the Zacks Consensus Estimate of $9,896.7 million. The company saw higher volumes in every region and segment on a year-over-year basis driven by its consumer-led portfolio and focus on capturing demand.
Dow, in its fourth-quarter call, noted that it entered the new year with momentum on a sequential comparison basis and is well-placed for sustained profitable growth amid the ongoing economic recovery. The company expects rising margins as differentiated parts of its portfolio witness improving demand on market recovery.
Dow is benefiting from cost synergy savings and productivity initiatives and its investment in high-return projects. The company focuses on maintaining cost and operational discipline. Dow achieved roughly $500 million in operating expense reductions in 2020.
The company also expects to realize more than $300 million annualized EBITDA benefit from a restructuring program being initiated in the third quarter of 2020. This includes a 6% reduction in its global workforce and actions to exit uncompetitive assets. Dow expects the restructuring program to be substantially complete by end-2021.
Dow is also benefiting from higher demand for its materials across healthcare and packaging markets, thanks to the coronavirus pandemic. The outbreak has led to a surge in demand for health, hygiene and safety products. It is also seeing a recovery across a number of markets including automotive, consumer durable and construction.
The company also remains committed to invest in attractive areas through highly accretive projects. It is investing in several high-return growth projects including the expansion of downstream silicones capacity.
Moreover, Dow remains committed to return value to its shareholders by leveraging strong cash flows. It generated strong operating cash flows from continuing operations of $6.3 billion and free cash flow of $5 billion in 2020. The company also returned $2.1 billion in dividends to its shareholders in 2020. Dow is also taking actions to further strengthen its financial position.
Earnings estimate revisions also have the greatest impact on stock prices. Over the past month, the Zacks Consensus Estimate for Dow for 2021 has increased 32.5%. The consensus estimate for 2022 has also been revised 17.5% upward over the same time frame.
Dow Inc. Price and Consensus
Dow Inc. price-consensus-chart | Dow Inc. Quote
Stocks to Consider
Other top-ranked stocks worth considering in the basic materials space include Nucor Corporation NUE, Fortescue Metals Group Limited FSUGY and United States Steel Corporation X.
Nucor has a projected earnings growth rate of 90.4% for the current year. The company’s shares have surged around 128% in a year. It currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Fortescue has a projected earnings growth rate of 107.8% for the current fiscal. The company’s shares have surged around 147% in a year. It currently sports a Zacks Rank #1.
U.S. Steel has an expected earnings growth rate of 201.1% for the current year. The company’s shares have surged around 317% in the past year. It currently carries a Zacks Rank #2.
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