Updated Aug 6 at 2:21pm ET.
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Oil prices jumped after reports of a plan to restrict ship traffic in the Strait of Hormuz, a critical waterway for global energy supplies. For Dow, higher oil prices are a double-edged sword.
While rising oil can sometimes lead to higher prices for the chemicals Dow sells, it also raises the cost of doing business globally. However, Dow often has a cost advantage because its North American plants use cheap natural gas rather than oil to make plastics. If oil prices stay high while natural gas stays low, Dow can often earn more profit than its rivals in Europe and Asia who rely more heavily on oil.
Source: CNBC
Dow delivered a strong quarter, with sales reaching about 12.1 billion dollars. This growth was almost entirely driven by higher prices, particularly in its plastics business, which helped offset a small drop in the actual amount of product sold.
The company is benefiting from what it calls self-help initiatives, which are internal cost-cutting and efficiency moves. While sales volumes were slightly lower due to planned maintenance at some plants, the ability to push through significant price increases suggests Dow still has strong footing in its core markets. For those watching the stock, this performance shows the company can grow its earnings even when global demand is not yet fully recovered.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
Goldman Sachs reduced its price target for Dow, reflecting a more cautious view of the company's near-term path. A price target is what an analyst thinks the stock will be worth in about a year.
This change likely stems from the ongoing challenges in the global chemicals market, where there is currently more supply of plastic than customers need. While the new target is lower than before, it is still higher than where the stock trades today, suggesting the firm still sees some room for the price to rise as market conditions eventually improve.
Source: Goldman Sachs
Oil prices rose after a ceasefire in the Middle East ended, raising concerns about supply through the Strait of Hormuz. This matters for Dow because oil is a major ingredient for many of its competitors in Europe and Asia. When oil prices rise, those rivals have to raise their prices to stay profitable.
Dow has a bit of a shield because its North American plants use cheap natural gas instead of oil. However, higher oil prices can still hurt the company if they cause gasoline prices to rise and make consumers spend less on the products that use Dow's plastics. We are watching to see if this price spike lasts long enough to change how much customers are willing to pay for chemicals.
Analysts have spent the last few months steadily lowering their price targets for the stock. Most experts are split, with 12 recommending a buy and 19 holding a neutral stance, while the average target suggests 19% upside.
The company has a consistent habit of clearing the bars set by analysts, often by wide margins, which suggests management is execution-focused and sets realistic expectations.
| Expectation | |
|---|---|
| EPS | $0.78 |
| Revenue | $11.25B |
