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The Ratings Game: Dow stock sinks toward 17-month low after Credit Suisse recommends selling


Shares of Dow Inc. sank Wednesday to the lowest level seen since early 2021, after Credit Suisse analyst John Roberts recommended investors sell, citing concerns the specialty chemicals company is likely to be hurt as supply chains normalize.

Roberts cut his rating on Dow to underperform, after being at neutral since April 2020. He lowered his stock price target to $49, which implies about 6% downside from current levels, from $67.

Dow’s stock

dropped 5.1% in midday trading, enough to pace the Dow Jones Industrial Average’s

decliners. It was on track to close at the lowest price since Jan. 29, 2021.

He said that until recently, consumers appeared to be overspending on goods relative to services, as the post-pandemic recession of 2020 was the first in which polyethylene demand went up. Polyethylene, or plastic, is used to protect and transport a variety of products.

Roberts said that chemical producers have also been “overearning,” as less-than-expected supply helped boost prices and results over the past year, but he believes that dynamic is changing.

“The past several quarters also benefited from industry capacity additions delayed by the pandemic, and weather and China curtailments of operations,” Roberts wrote in a note to clients. “We believe these factors could be reversing. And channel inventories downstream from Dow are not well tracked, but that could also present a risk as supply chains normalize.”

Dow’s stock has been outperforming its materials-sector peers and the broader stock market this year, given relatively high earnings valuations. The stock has lost 8.1% year to date, while the SPDR Materials Select Sector exchange-traded fund

has dropped 17.5% and the S&P 500 index

has tumbled 20.6%.

Roberts doesn’t expect this type of outperformance to last amid growing concerns that a recession may be imminent.

“Given goods-related slowing is appearing closer to the consumer, we believe above-normal returns for upstream producers like Dow should be further discounted,” Roberts wrote. (“Upstream producers” refers to companies that make raw materials used in manufacturing end products.)

Of the 25 analysts surveyed by FactSet who cover Dow, only two analysts have the equivalent of sell ratings on the stock, while six are bullish and 17 are neutral. The average stock price target is $70, or about 34% above current levels.

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