Bank of America Securities analyst Steve Byrne downgraded Dow Inc. DOW to Underperform from Buy, lowering the price forecast from $44 to $28.
The analyst cited a combination of weakening macroeconomic conditions, rising U.S. feedstock costs, and increasing trade barriers as factors creating a “perfect storm” for the company.
As a result, Byrne has significantly reduced EBITDA forecasts for 2025 and 2026 by 17% and 23%, respectively. He now expects $4.8 billion and $5.4 billion.
The company’s current valuation is less “attractive,” the analyst writes.
Adding to the pressure, Dow’s annual dividend of around $2 billion is now seen as increasingly at risk. Projected free cash flow shortfalls for 2025-26 will widen to $2.6 billion from the previously estimated $1.25 billion, Byrne says.
Net leverage is also expected to approach 3x through 2027.
Byrne expressed concerns that Dow’s reliance on sectors like housing, construction, and automotive could significantly pressure its earnings amid a slowing global economy.
While roughly 30% of Dow’s revenue stems from the more resilient packaging segment, the company’s strong dependence on polyethylene exports poses a notable risk, the analyst writes.
The U.S. is a major net exporter of polyethylene—accounting for 40%-50% of Dow’s sales—with China alone representing over 20% of these exports.
However, recent steep tariffs imposed by China threaten this critical revenue stream, Byrne adds.
The analyst has revised estimates downward due to anticipated lower volumes and weaker profit margins across Dow’s key segments. Specifically for U.S. polyethylene, the analyst now expects more modest price gains—projecting increases of just 1 cent per pound over the next three months, compared to a previously expected 3 cents—followed by price declines later in the year.
This more cautious outlook stems from concerns about weakening demand and already high inventory levels.
Price Action: DOW shares are trading lower by 3.6% to $27.84 at last check Tuesday.
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