(DOW) Dow Chemical Held at Neutral

We are reaffirming our Neutral recommendation on Dow Chemical (DOW) following its mixed first-quarter 2013 results. Its adjusted earnings for the quarter outperformed the Zacks Consensus Estimate while revenues miss.

Why Neutral?

The U.S. chemical kingpin’s profit soared 33% in the first quarter on strength in its agriculture business, buoyed by healthy demand from farmers. The company registered record sales of seeds and crop protection products. However, sales fell 2% in the quarter as gains across agricultural sciences and electronic and functional materials were masked by declines in other businesses.

Dow, which currently retains a short-term Zacks Rank #3 (Hold), is benefiting from strong fundamentals in 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 the 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. It also continues debt repayments having reduced its debt by over $900 million in the first quarter.

However, Dow continues to witness softness in the electronics and construction end-markets. Moreover, Dow is facing challenges in Western Europe due to the beleaguered economic conditions. It does not see a material improvement in the macroeconomic environment this year.

Moreover, Dow is exposed to significant pension headwinds. The company expects pension costs to increase between $250 million and $300 million in 2013.

Other Stocks to Consider

Other companies in the chemical industry that are worth considering include Shin-Etsu Chemical Co., Ltd. (SHECY), Celanese Corporation (CE) and Methanex Corporation (MEOH). While Shin-Etsu Chemical retains a Zacks Rank #1 (Strong Buy), both Celanese and Methanex hold a Zacks Rank #2 (Buy).
CELANESE CP-A (CE): Free Stock Analysis Report

DOW CHEMICAL (DOW): Free Stock Analysis Report

METHANEX CORP (MEOH): Free Stock Analysis Report


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