The Dow Chemical Company (DOW) has come out of the worst of the recession with a string of 5 straight big earnings surprises and a strategy to grow revenue by 10% a year.
Dow is one of those companies that many people have heard of but they don’t know exactly what it is the company does. Founded in 1897 to sell commercial bleach, Dow now manufactures over 5,000 products at 214 facilities in 37 countries so it’s not surprising that what it actually “does” is a bit amorphous.
It’s best known for its specialty chemical, advanced materials, agrosciences and plastics businesses, however.
Dow’s Strategy Through 2015
At a recent investor conference on May 19, Dow projected a 10% annual revenue growth rate with sales expected to grow to $12 billion by 2012 and $16 billion by 2015.
Its Dow Advanced Materials division is expected to expand profitability as it has a $7 billion innovation pipeline.
The company is expanding its international operations, regardless of the global recession. It is constructing a new Dow Electronic Materials R&D facility in Korea, investing in a new Dow Coating Materials emulsions plant in eastern China and expanding its Italian Water & Process Solutions facility.
Analysts See Big Earnings Growth in 2010
You would expect a company that is involved in many of the building blocks of various industries to be amongst the first to see improvement once the global economy turns around and that is the case with Dow.
Analysts are very optimistic about 2010, seeing earnings growth of 169%. The full year Zacks Consensus is up a penny to $1.69 in the last 30 days.
Growth is expected to continue in 2011, with earnings expected to jump by 53% to $2.59 per share.
Comparatively, Dow made just 63 cents during the worst of the crisis in 2009.
Still, not all analysts are equally enthused. One has a sell on the company and another has a strong sell. These are unchanged in the last 3 months.
You can see the consensus estimates are charting upward growth until at least 2012.
Value Fundamentals
Dow Chemical is just on the cusp of being a value stock. It is trading at 14.7x forward earnings but this is under the industry average of 15.3. Its price-to-book ratio is a bit more juicy, at 1.7. The industry average is 1.9.
The company has a solid 5-year return on equity (ROE) of 18.3%.
Dow rewards shareholders with a dividend currently yielding 2.4%. It is scheduled to report earnings on July 22.
Dow Chemical is a Zacks #1 Rank (strong buy) stock.
[The author of this article owns shares of Dow Chemical.]
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.
