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Can Dow Chemical Beat Analysts’ Operating EPS Estimates for 2Q17?

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Dow Chemical 2Q17 operating EPS

Analysts expect Dow Chemical (DOW) to post operating EPS (earnings per share) of $1.00 in 2Q17—a rise of 5.3% on a YoY (year-over-year) basis. In 2Q16, DOW reported operating EPS of 0.95.

In the past five quarters, DOW has managed to outperform the analysts’ estimates. But it remains to be seen whether DOW will be able to beat the analysts’ estimates.

DOW’s expected growth in operating EPS could be primarily driven by the continued synergy impact from the Dow Corning integration. DOW has acquired the remaining stake of the joint venture between Dow Chemical and Corning (GLW).

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Cost of goods sold

DOW’s COGS (cost of goods sold) is expected to decline a percentage of sales. Analysts are expecting DOW’s COGS to be at ~$10.1 billion, representing ~74.3% of expected revenues in 2Q17. In 2Q16, DOW’s COGS was $9.17 billion, representing ~76.7%. This implies a reduction of 240 basis points on a YoY basis.

DOW’s earnings from its equity investment could also help boost its operating EPS. In 2Q16, DOW reported $82 million in equity earnings. It’s worth nothing that in 1Q17 DOW’s equity earnings reflected a massive jump of 402% to $196 million.

Share repurchases

DOW has been actively involved in share repurchases to improve its EPS. DOW has stopped repurchasing its common stock due to its merger with DuPont (DD). DOW resumed its share repurchase program in 2Q16. In 1Q17, DOW didn’t do any share repurchases.

At the end of 1Q17, DOW had ~1.2 billion shares outstanding and had $1.4 billion left in its share repurchase program.

Investors can invest in the iShares US Basic Materials ETF (IYM), which has 12.0% in DOW. IYM’s other holdings include Monsanto (MON), which had a weight of ~8.3% in the fund on July 21, 2017.

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