Shares of Dow Inc. collapsed on Wednesday to the lowest level seen since early 2021, after Credit Suisse analyst John Roberts advised investors to sell, citing concerns that the specialty chemicals company would be affected by as supply chains normalize.
Roberts downgraded its Dow rating to a lower performance, having been neutral since April 2020. It lowered its stock price target to $ 49, which means a disadvantage of 6% from current levels, starting at $ 67.
Dow DOW shares,
fell by 5.1% in the midday trading, enough for the Dow Jones Industrial Average DJIA to pace,
declining. It was about to close at the lowest price since January 29, 2021.
He said that until recently, consumers seemed to be spending more on goods in relation to services, as the post-pandemic recession of 2020 was the first in which demand for polyethylene increased. Polyethylene, or plastic, is used to protect and transport a variety of products.
Roberts said chemical producers have also “earned too much” as less-than-expected supply helped drive up prices and results over the past year, but he believes the dynamic is changing. .
“Recent quarters have also benefited from industry capacity additions delayed by the pandemic and climate constraints and China’s operations,” Roberts wrote in a note to customers. “We believe these factors could be reversed. And Dow’s downstream inventory is not well tracked, but that could also pose a risk as supply chains normalize.”
Dow’s equities have outperformed their materials and stock market peers overall this year, given relatively high earnings ratings. Shares have lost 8.1% so far, while the publicly traded fund SPDR Materials Select Sector XLB,
has fallen 17.5% and the S&P 500 SPX index,
has fallen by 20.6%.
Roberts doesn’t expect this kind of superior performance to last amid growing concern that a recession may be imminent.
“As the goods-related slowdown seems closer to the consumer, we believe returns above normal for upward producers like Dow should be discounted more,” Roberts wrote. (“Upstream producers” refers to companies that manufacture raw materials used in the manufacture of end products).
Of the 25 analysts surveyed by FactSet that cover Dow, only two analysts have the equivalent of stock-selling ratings, while six are bullish and 17 are neutral. The average stock price target is $ 70, or about 34% above current levels.