Dow Downgraded: Analyst Blames 'Perfect Storm' Of Weak Macro, High Costs, Trade Barriers

Core Viewpoint - Bank of America Securities analyst Steve Byrne downgraded Dow Inc. from Buy to Underperform, citing a "perfect storm" of weakening macroeconomic conditions, rising U.S. feedstock costs, and increasing trade barriers [1] Group 1: Financial Forecasts - EBITDA forecasts for 2025 and 2026 have been significantly reduced by 17% and 23%, respectively, now expected at $4.8 billion and $5.4 billion [1] - Projected free cash flow shortfalls for 2025-26 are expected to widen to $2.6 billion from the previously estimated $1.25 billion [3] Group 2: Dividend and Leverage Concerns - Dow's annual dividend of around $2 billion is now seen as increasingly at risk [3] - Net leverage is expected to approach 3x through 2027 [3] Group 3: Revenue and Market Risks - Dow's reliance on sectors like housing, construction, and automotive could significantly pressure earnings amid a slowing global economy [4] - Approximately 30% of Dow's revenue comes from the more resilient packaging segment, but strong dependence on polyethylene exports poses notable risks [4] - The U.S. is a major net exporter of polyethylene, accounting for 40%-50% of Dow's sales, with China representing over 20% of these exports [4] Group 4: Price and Demand Outlook - Recent steep tariffs imposed by China threaten Dow's critical revenue stream [5] - Anticipated lower volumes and weaker profit margins across key segments have led to downward revisions in estimates [5] - For U.S. polyethylene, expected price gains have been revised down to just 1 cent per pound over the next three months, compared to a previously expected 3 cents, with price declines anticipated later in the year [5] - The cautious outlook is attributed to concerns about weakening demand and already high inventory levels [6]