Urban Expansion And Advanced Recycling Will Drive Specialty Markets

Key Takeaways

• Divesting noncore assets and European shutdowns streamline Dow's cost base, enabling rapid margin expansion and earnings rebound as demand returns.
  
• Strategic investments and sustainability leadership drive outperformance, fueling both higher-margin growth and new cash flow opportunities in emerging and premium markets.
  
• Persistent global oversupply, high costs, and delayed sustainability investments threaten Dow's margins, market share, and financial flexibility amid shifting regulations and weak industry fundamentals.

Catalysts

Through its subsidiaries, provides various materials science solutions for packaging, infrastructure, mobility, and consumer applications in the United States, Canada, Europe, the Middle East, Africa, India, the Asia Pacific, and Latin America.

• Analysts broadly agree that delaying large CapEx projects and divesting noncore assets will boost near-term cash flow, but this could be understated; with $6 billion in cash generation already locked in and further upside from a possible additional sale of infrastructure stakes, Dow is positioned to aggressively redeploy capital for organic growth and high-return projects once market conditions normalize, significantly enhancing earnings power and margin expansion over the next cycle.
  
• Analyst consensus sees the shutdown or idling of European assets as mainly near-term cash optimization, but the move's long-term impact is larger: these actions structurally reposition Dow's cost base, concentrating volume in its lowest-cost, best-integrated assets globally, setting up an accelerated earnings rebound and multi-year margin outperformance as global demand returns, particularly in polyethylene and specialty materials.
  
• Dow's newly commissioned world-scale polyethylene and alkoxylation units are now fully ramping, aimed at high-value, fast-growing end markets tied to rising urbanization and emerging market middle class expansion, pointing to a steeper volume growth trajectory and higher average unit margins that can drive sustained revenue outperformance versus peers.
  
• The Diamond Infrastructure Solutions partnership unlocks strategic opportunity well beyond the initial cash proceeds, with Dow able to leverage underutilized industrial land and integrated utilities to attract next-generation manufacturing, grid-scale energy assets, and data center tenants needed by the digitization and electrification wave, representing a potentially large, unmodeled source of incremental, high-margin cash flows over the next decade.
  
• Dow's leadership in sustainable materials, bolstered by new advanced recycling and low-carbon solution contracts, positions it to disproportionately benefit from rising global sustainability mandates and circular economy adoption, supporting premium pricing, new customer partnerships, and durable net margin expansion as regulatory pressure intensifies across Dow's core end-markets.

Dow Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Dow compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Dow's revenue will grow by 3.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -2.4% today to 4.2% in 3 years time.
• The bullish analysts expect earnings to reach $1.9 billion (and earnings per share of $2.67) by about August 2028, up from $-994.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 20.8x on those 2028 earnings, up from -16.0x today. This future PE is lower than the current PE for the US Chemicals industry at 23.9x.
• Analysts expect the number of shares outstanding to grow by 1.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.62%, as per the Simply Wall St company report.

Dow Future Earnings Per Share Growth

Risks

• Dow is facing prolonged structural oversupply in core markets like polyethylene and polyurethanes, driven by new capacity from low-cost competitors in China and elsewhere, which is putting sustained downward pressure on prices and margins and will weigh on both revenue and net income growth over the long term.
  
• The company is being forced to shutter multiple upstream assets in Europe due to chronic regional cost disadvantages and demand challenges, signaling possible long-term volume declines and reduced earnings power in high-cost or shrinking geographies.
  
• There is mounting pressure from global decarbonization policies and regulations, as well as tightening rules on single-use plastics, which are likely to lead to elevated compliance costs, shrinking addressable markets, and compression of operating margins over time as Dow's product slate is heavily weighted to conventional petrochemicals.
  
• Dow admits it is deferring large-scale, breakthrough sustainable investment projects like Path2Zero due to weak operating cash flow, which risks ceding "green premium" market share to more proactive competitors and potentially resulting in lagging future revenue and margin growth in the transition to more sustainable materials.
  
• With the announced 50% dividend cut due to a "lower for longer" earnings environment and no clear timeline for recovery, there is evidence of persistent cyclicality, high fixed costs, and limited flexibility, all of which create a risk of further pressure on earnings, net cash flow, and ultimately, the share price if market conditions do not improve materially.

Valuation

• The assumed bullish price target for Dow is $41.27, which represents two standard deviations above the consensus price target of $29.35. This valuation is based on what can be assumed as the expectations of Dow's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $45.0, and the most bearish reporting a price target of just $20.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $46.0 billion, earnings will come to $1.9 billion, and it would be trading on a PE ratio of 20.8x, assuming you use a discount rate of 9.6%.
• Given the current share price of $22.38, the bullish analyst price target of $41.27 is 45.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.