Deutsche Bank Gives Color On Dow Chemical Following Strong Earnings

Deutsche Bank believes Dow Chemical's DOW strong $0.12 beat in Q4, coupled with accelerating industrial and B2B markets in the US/Europe, further validates EPS of $2.50-plus in ‘11E. Dow Q4 reported earnings from operations of $0.47, up 172% YoY, and $0.12 above consensus. A higher than expected tax rate cost $0.03. EBITDA totaled $1.9B, up 30% YoY, $300MM above consensus. While Dow's Q4 was impressive, Deutsche Bank notes 2/3 of the YoY EBITDA improvement was generated by its cyclical commodity chemical segments which it believes deserves a lower valuation than Dow's Performance segments. Dow could retain this commodity taint for longer than expected as DB now believes a monetization event is less likely in '11. With Plastics performing at a high level based on the arbitrage of low US ethane prices vs global naphtha prices, CEO Andrew Liveris sounded more inclined to pursue an ethylene chain integration strategy than before. Deutsche Bank has a $40 PT and Hold rating on DOW DOW closed Thursday at $36.74