We have retained our Neutral recommendation on
) following its mixed fourth-quarter 2012 results. Its adjusted
earnings for the quarter missed the Zacks Consensus Estimate
while revenues beat.
Why Kept at Neutral?
The U.S. chemical giant turned to a wider loss (on a reported
basis) in the fourth quarter on hefty restructuring and goodwill
impairment charges. Lower pricing and weak market conditions
impacted sales in the quarter. However, Dow's agricultural
business was a bright spot with sales increasing at a
Dow is benefiting from strong fundamentals in agriculture and
food markets and is leveraging its North American feedstock
advantage. A string of innovative products in its pipeline adds
to its strength.
The company remains focused on driving earnings leveraging its
feedstock strength and strong momentum in the agricultural
sciences business. It also continues to pursue its cost reduction
and efficiency programs. Dow targets aggregate cost savings of
$2.5 billion with $1 billion expected this year.
Moreover, Dow remains committed to offer incremental returns to
its shareholders. It also continues debt repayments while making
However, Dow continues to witness slowing economic activity,
largely due to the beleaguered economic conditions in Europe.
Softness across end markets, especially in China, and weak
pricing are affecting its results. Weakness in the electronics
and construction end-markets may continue in first-quarter 2013.
Moreover, Dow is exposed to significant pension headwinds. The
company expects pension costs to increase between $250 million
and $300 million in 2013.
Dow currently retains a short-term Zacks Rank #3 (Hold)
Other Stocks to Consider
Other companies in the chemical industry worth considering are
). While Arkema retains a Zacks Rank #1 (Strong Buy), both BASF
and Air Products hold a Zacks Rank #2 (Buy).
AIR PRODS & CHE (APD): Free Stock Analysis
(ARKAY): ETF Research Reports
BASF SE (BASFY): Free Stock Analysis Report
DOW CHEMICAL (DOW): Free Stock Analysis
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