Dow Inc.: Elevated Capex, Weak Cash Generation, and Limited Earnings Visibility Drive Sell Rating

BMO Capital analyst John McNulty maintained a Sell rating on Dow Inc on January 28 and set a price target of $22.00.

John McNulty has given his Sell rating due to a combination of factors tied to Dow’s earnings trajectory, cash generation, and capital spending plans. Despite Dow modestly surpassing lowered expectations in the fourth quarter, the beat was driven largely by cost reductions and strength in a single segment, while overall volumes and pricing remained weak and cash flow from operations significantly lagged forecasts. Management’s outlook for the first quarter points to only incremental improvement and still falls short of consensus, with no clear visibility on a robust recovery, suggesting that current longer-term earnings expectations, particularly for 2026, are likely too high.

McNulty also highlights growing balance-sheet pressure as Dow pushes ahead with its large Path2Zero project in Alberta, which is now more expensive, delayed, and proceeding without a partner, leaving the company to shoulder the bulk of roughly $6 billion in net capital outlays. Given a softening supply-demand environment in polyethylene, a lighter-than-expected free cash flow profile, and rising demands to sustain an attractive dividend, he sees a deteriorating risk/reward setup. In his view, these combined headwinds—subdued fundamentals, elevated capital commitments, and an increasingly strained cash position—are likely to cause Dow’s shares to lag peers, supporting his Sell (Underperform) recommendation.

DOW’s price has also changed slightly for the past six months – from $25.710 to $27.780, which is a 8.05% increase.