Dow Inc. shares rise after Evercore ISI upgrades to 'outperform'

Investing.com -- Shares of Dow Inc (NYSE:DOW). rose on Wednesday during pre-market trading following an upgrade from analysts at Evercore ISI. 

The brokerage shifted its rating on Dow Inc. to "outperform" from "in line," reflecting an optimistic outlook on the stock's valuation and growth potential.

Evercore ISI cited an "attractive risk-reward" proposition as the key rationale for the upgrade. The report highlighted that Dow's non-polyethylene segments, including silicones, polyurethanes, and coatings, have underperformed relative to peers in recent years. 

However, these segments are poised for a substantial rebound as macroeconomic conditions stabilize.

The upgrade is underpinned by expectations of improved demand in critical end markets such as construction, where Dow holds big exposure. 

Analysts noted that visibility on forward earnings has improved, driven by factors like capacity expansions and ongoing cost-cutting measures. 

Despite lingering concerns about housing and industrial demand, Evercore ISI sees early signs of recovery, including potential Federal Reserve rate cuts and the positive effects of China’s economic stimulus.

Valuation metrics also support the bullish stance. At current levels, Dow trades at approximately 5.3 times its near-term mid-cycle earnings potential of $8 billion—a multiple typically associated with peak earnings rather than mid-cycle. 

This discrepancy suggests room for substantial price appreciation. The analysts set a price target of $56, implying an upside from current levels near $40.

The brokerage acknowledged potential risks, including tariff uncertainties and continued softness in auto and housing markets. 

Nonetheless, they argue that Dow's diversified asset base and strategic flexibility mitigate these challenges, making the stock an appealing investment for those seeking exposure to a sector poised for recovery.

This upgrade comes at a time when Dow has faced downward pressure, making the current entry point particularly compelling, as per Evercore ISI.