DOW Joins Forces with HON Unit - Analyst Blog


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The Dow Chemical Company  ( DOW ) is joining forces with UOP LLC, a subsidiary of Honeywell International Inc. ( HON ), to produce propylene at its petrochemical facility in Texas.

Dow will be using Honeywell UOP C3 Oleflex technology in its new propane dehydrogenation unit to convert shale gas-derived propane to propylene, a product used in the production of packaging, adhesives, coatings, cleaners and many other end-use applications. The facility will produce 750,000 metric tons per year of polymer-grade propylene and is scheduled to start in 2015.

This project would be the first of its kind in the United States and the largest single-train propane dehydrogenation plant in North America.

This agreement further enhances DOW's comprehensive plan to spread its wings and connects the Dow's U.S. operations with cost-advantaged ethane and propane feedstocks of Honeywell.

In October 2011, Dow earned 69 cents per share in the third quarter of 2011, ahead of the Zacks Consensus Estimate of 64 cents as well as last year's 45 cents. However, including one-time charges, the company earned 62 cents per share compared with 54 cents in the year-ago quarter.

Quarterly revenues jumped 17% year over year to $15.1 billion and were above the Zacks Consensus Estimate of $14.7 billion. The growth in revenue was driven by double-digit gains in all its operating segments and geographic areas, with the largest growth in Latin America (21%) and Europe, Middle East and Africa (EMEA) (19%). In the emerging geographies, sales reached $5 billion, a new quarterly record for the company.

Dow did not provide any financial guidance. However, the company expects demand to improve further, especially in Asia with the global economic recovery. The US and European markets have also started showing signs of improvement. Dow is also optimistic on major consumer-markets, including electronics, coatings, automotive and packaging. However, construction markets are expected to remain weak.

Joint ventures and acquisitions are integral parts of Dow's growth strategy and provide access to potential markets, new technologies and feedstock, while at the same time lowering capital investment and risk. Dow Chemical became the world's leading specialty chemicals and advanced materials company after acquiring ROH for $16.3 billion.

Dow is targeting faster-growing geographies. The company earns two-thirds of its income from outside the U.S. Growth in emerging economies has been especially fast, generating almost 35% of the company's revenues in 2010. To strengthen its downstream business, Dow is building an integrated manufacturing facility for Performance Products, Plastics and Performance Systems businesses with Saudi Aramco. In its Agro business, Dow is introducing new products. In November 2010, Dow AgroSciences submitted the global joint-review dossier for sulfoxaflor insecticide, which will be launched in 2012. By 2013, Dow projects new product sales to reach $800 million. The company also started a new business in the Oil & Gas sector in Latin America.

DOW faces stiff competition from  EI DuPont de Nemours & Co.  ( DD ).

Currently, Dow has a short-term (1 to 3 months) Zacks #3 Rank (Hold) and a long- term Neutral recommendation.

DU PONT ( EI ) DE ( DD ): Free Stock Analysis Report
DOW CHEMICAL ( DOW ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: DD , DOW , EI , HON

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