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Why Most Analysts Rate Dow Chemical as a ‘Buy’ before Its 4Q16 Earnings

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Analysts recommendation for Dow Chemical

On January 17, 2017, 20 brokerage firms were actively tracking Dow Chemical (DOW) stock. Among them, 75% recommended the stock as a “buy,” 20% recommended the stock as a “hold,” while the remaining 5% recommended the stock as a “sell.”

The analysts’ consensus indicates a 12-month target price for Dow Chemical of $62.83, which implies a return potential of 9.6% from its closing price of $57.33 on January 13, 2017.

Why are analysts recommending a buy on DOW?

Although the Dow Chemical (DOW) and the DuPont (DD) merger is in the hands of the regulators, the opportunity to grow in Saudi Arabia is seen as DOW’s next growth driver. Also, the contribution from the completed takeover of the Dow Corning business is expected to enhance its revenue and earnings growth.

These factors could have influenced analysts to increase the target price from $59.83 in October to its current target price of $62.83.

Recommendations and targets

The recommended target prices for Dow Chemical from some well-known brokerage firms are as follows:

  • On January 13, 2017, J.P. Morgan (JPM) raised DOW’s target price to $63.00, which implies a 12-month return of 9.9% based on the closing price of $57.33 on January 17, 2017.
  • On December 19, 2016, RBC (RY) raised DOW’s target price to $72.00, which implies a 12-month potential return of 25.6% based on the closing price of $57.33 on January 17, 2017.
  • On October 28, 2016, Nomura Securities (NOM) rated DOW as a “buy” with a target price of $63.00. This implies a 12-month return of 9.9% based on the closing price of $57.33 on January 17, 2017.

Investors can indirectly hold Dow Chemical by investing in the First Trust Indxx Global Agriculture ETF (FTAG), which invested 9.8% of its portfolio in Dow Chemical on January 17, 2017.

In the final part of this series, we’ll look into DOW’s valuation compared to its peers.

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