Dow, Inc. (DOW.US) faces a "perfect storm" and has its target price cut by Bank of America.

On Tuesday, Bank of America Corp analysts downgraded Dow, Inc.'s chemical (DOW.US) rating from "buy" to "underperform" by two levels, and reduced the target price from $44 to $28. They warned that factors such as weak global demand, rising trade barriers, and increasing raw material costs are eroding the profit prospects of this chemical giant, and putting its dividend at risk. Bank of America analyst Steve Byrne described the situation as a "perfect storm" for Dow, Inc.'s chemical, emphasizing recent macroeconomic weakness, the outbreak of global trade wars, and unfavorable cost dynamics prompting a significant reset in expectations. Since the announcement of comprehensive tariffs by the United States on April 2, the stock price of Dow, Inc.'s chemical has dropped by 19%. Byrne stated that despite the sell-off, the valuation of the stock no longer seems attractive considering the delay in recovery time and deteriorating financial prospects. One of the most urgent issues is Dow, Inc.'s chemical $2 billion in annual dividends. Based on revised earnings and cash flow prospects, Bank of America Corp estimates a free cash flow deficit of $2.6 billion in 2025 and 2026, more than double the previous forecast. This puts increasing pressure on Dow, Inc.'s ability to maintain its dividend, especially as the company's net leverage ratio is expected to climb to nearly three times by 2027. Dow, Inc.'s chemical is heavily exposed to cyclical industries such as housing, construction, and automotive, making it vulnerable in a global economic downturn. While about 30% of its revenue comes from the more stable packaging market, the company is also a major exporter of polyethylene, accounting for 40%-50% of its sales. China is one of the company's largest overseas markets, and is now imposing high tariffs on U.S. polyethylene, adding another layer of uncertainty. However, Bank of America Corp points out a potential offsetting factor: driven by weak global demand and reduced exports, U.S. raw material costs are expected to decrease. Nevertheless, it is expected that this tailwind will not be strong enough to offset broader profit pressures. The bank has lowered its profit expectations for the company across the board, forecasting that U.S. polyethylene prices will grow more modestly than previously expected, and then decline later in the year due to oversupply and weakening demand. Bank of America Corp currently projects Dow, Inc.'s chemical EBITDA to be $4.77 billion in 2025, lower than the previous $5.85 billion; and $5.42 billion in 2026, lower than the previous $7.04 billion. Therefore, Bank of America Corp has lowered Dow, Inc.'s chemical enterprise value to EBITDA ratio valuation from 8 times to 7.5 times for 2025, and reduced the target price for Dow, Inc.'s chemical from $44 to $28. The bank notes that due to heightened risks for Dow, Inc.'s chemical and a slowdown in future profitability recovery, investors may find better opportunities in other areas of the chemical sector.