DOW (Dow Inc.): Riding the Short-Term Rally Before the Downtrend?

Dow is a materials science company providing solutions to customers in high-growth markets like packaging, infrastructure, mobility, and consumer applications. The company operates through three main segments: 'Packaging & Specialty Plastics', offering polyolefin products and solutions for food packaging, industrial applications, and consumer durables; 'Industrial Intermediates & Infrastructure', producing intermediate chemicals and customized materials such as 'UCARSOL' amines for carbon capture and 'DOWFROST' fluids for data center cooling, serving sectors like coatings, detergents, and construction; and 'Performance Materials & Coatings', delivering solutions using acrylics and silicones through brands like 'DOWSIL' silicone products and 'ACRYSOL' rheology modifiers, targeting architectural coatings, personal care, and electronics. Dow differentiates itself through its global reach, asset integration, focused innovation, and commitment to sustainability, aiming to deliver profitable growth and a sustainable future.

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DOW's technical outlook is mildly bearish. The recent price action shows a downtrend, with the price declining from a high of $30.37 on July 23rd to $22.61 as of November 4th. The price is below its 50-day SMA (23.50) and 200-day SMA (28.81), confirming the downtrend. The 21-day EMA at 23.44 is also above the current price. Momentum indicators suggest continued weakness. The MACD is negative (-0.2894), with the MACD line below the signal line, indicating bearish momentum. The RSI is at 48.86, suggesting neither overbought nor oversold conditions, but trending down. Stochastic %K is at 50.83, which is neutral. The ADX is at 19.98, indicating a weak trend. The ROC 20 is at -0.81, a negative value. The recent price drop, combined with the negative momentum and trend indicators, suggests a likely continuation of the downtrend over the next 1-3 months. The price is closer to its 52-week low (20.40) than to its 52-week high (46.35) reinforcing the bearish signal.

Dow's MD&A paints a picture of a company navigating challenging macroeconomic conditions. `Net sales` for the third quarter of 2025 decreased by 8% year-over-year, from '$10.9 billion' to '$10.0 billion,' reflecting declines across all operating segments and geographic regions. The company attributes this to 'slower global GDP growth' and 'industry overcapacity'. Cost of sales as a percentage of net sales increased to '92.7 percent' in the third quarter of 2025 from '90.2 percent' in the third quarter of 2024. Cash flow from operating activities for the first nine months of 2025 was '$764 million,' significantly lower than the '$2,092 million' reported for the same period in 2024. This is reflected in the negative Free Cash Flow (non-GAAP) of '($1,147) million' versus '($81) million'. In response to these challenges, Dow has implemented cost reduction initiatives, including a workforce reduction and a reduction in capital expenditures, delaying the Path2Zero project. The company also reduced its quarterly dividend by 50% to '$0.35 per share' to enhance financial flexibility. While Dow emphasizes its 'strong financial position' and actions to 'strengthen its competitiveness,' the near-term outlook remains uncertain, with management expecting 'macroeconomic conditions experienced in the first nine months of 2025 to persist in the near term'.

The Dow earnings call paints a bearish picture due to a prolonged industry downturn and significant headwinds. Net sales declined 7% year-over-year to $10.1 billion, and EBITDA was down to $703 million. In response to these challenges, management announced a 50% dividend reduction, stating it was 'the most prudent way to maintain financial flexibility.' This decision underscores the severity of the situation. While the company is pursuing cost savings, now expecting $400 million this year, and divesting non-core assets to generate cash, the overall tone remains cautious. Management anticipates third-quarter EBITDA to be approximately $800 million, a slight improvement, but this is tempered by 'ongoing tariff and geopolitical uncertainty' impacting demand. The outlook is further clouded by oversupply issues, particularly from Chinese exports impacting pricing in Europe and Latin America. Despite some positive developments like the Poly-7 polyethylene train startup, the dividend cut and the general acknowledgment of a 'protracted down cycle' suggest continued pressure on the stock in the near term.

DOW's financial performance presents a mixed picture. Revenue has fluctuated, starting at $10.765B in Q1 2024, peaking at $10.915B in Q2 2024, and then showing some variability, with the latest quarter (Q3 2025) at $10.879B. Gross profit margins have also been inconsistent, beginning at 12.54% in Q1 2024 and dropping significantly to 0% in Q3 2025, indicating potential cost pressures. Operating cash flow has been volatile, with a recent negative value of -$470M in Q2 2025, raising concerns about short-term liquidity, although Q4 2023 showed a strong $1.656B. Total debt has increased from $17.738B in Q1 2024 to $19.625B in Q3 2025, suggesting increased leverage. While the company has demonstrated an ability to generate positive operating cash flow in some quarters, the negative net income in multiple quarters and the increasing debt load warrant caution. The absence of complete data for all quarters, particularly the lack of income statement and balance sheet data for Q3 2023, limits a full trend analysis.

The company presents a moderately bullish investment profile based on its key metrics and financial ratios. Revenue has shown positive growth, indicating a healthy demand for its products or services. The gross margin has remained relatively stable, suggesting efficient cost management. The Return on Equity (ROE) indicates a solid return for shareholders. The Price-to-Earnings (P/E) ratio suggests the company is appropriately valued by the market. The debt-to-equity ratio has seen a decrease, showcasing the company's improved financial leverage. The current ratio signifies the company's strong ability to meet its short-term obligations. Overall, the company demonstrates a stable and growing business model with a healthy balance sheet, making it a moderately attractive investment for the next 6-12 months.