SunTrust Upgrades Dow On Disciplined Capex Plans

The Dow Chemical Company’s DOW disciplined approach to capital expenditure is likely to result in attractive free cash flow generation and strong dividend, according to SunTrust Robinson Humphrey.

The Analyst

SunTrust’s James Sheehan upgraded Dow Chemical Company from Hold to Buy while raising the price target from $52 to $59.

The Thesis

Key chemical companies experienced decline in earnings and soft margins in late 2018 and 2019, and there seems to be “very limited further downside” in 2020, Sheehan said in the upgrade note.

He added that Dow Chemical’s earnings could benefit in 2020 from its recent capacity investments and incremental synergy savings.

Against the backdrop of continued macro uncertainty in 2020, the company’s earnings could prove to be more resilient than peers, the analyst further mentioned.

Sheehan noted that Dow Chemical’s cash restructuring costs would decline by $1 billion and cash interest by $100 million. Given these, and expectations of free cash flows exceeding $4 billion in 2020, the company would have enough liquidity to further deleverage, pay its dividend of $2.1 billion and have funds remaining for additional share buybacks.

Price Action

Shares of Dow Chemical Company were up 0.17% at $53.31 at the time of publishing on Monday.

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