DOW Problems A Near-Term Drag

Dow Chemical Co. (DOW), headquartered in Michigan, is the second largest chemical manufacturer in the world that offers a range of chemical, plastic, and agricultural products and services. Vertical integration keep costs low.

Further, the acquisition of Rohm and Haas (ROH) will consolidate higher margin and higher growth specialty businesses and reduce volatility in earnings and cash flow.

However, Dow has a high exposure to the commodity chemical cycle. The cancellation of the joint venture agreement with Petrochemical Industries Company (PIC) of Kuwait expects to have an adverse impact on the company and could mar its attempt to reduce cyclicality in the chemical business. Demand is weakening due to global economic crisis.

Thus, we expect earnings to remain under pressure and maintain our Hold rating for the stock and set a target of $10.

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