Thursday, January 25, 2007

Dow Chemical - Update - Full steam ahead

Dow released earnings for the fourth quarter this morning. Earnings came in as expected. They were down from last year but for a very good reason. People had stocked up earlier last year after hurricane forecasters gave us the end of the world scenario. When that did not develop (sarcastic surprise inserted here) they have spent the last two quarters working off the excess inventory. The good news? This will lead to increased demand in the first half of 2007 boosting results.

So, has anything changed from the reasons I espoused you should buy DOW in Saturday's post? In a word, NO.

CEO Andrew Liveris said on CNBC that DOW was:

-The low cost producer in it lines of business
- After 17 consecutive quarters of increases, feedstock and energy prices dropped and look to remain low, this both increases demand for its products and lower its costs. Result? Continued margin improvement
- Reduced it's "cyclical" business to 47%, he declared "we are no longer a cyclical company"
- Had record revenue and earnings
- Balance sheet is "very, very strong" - Cash is increasing and debt decreasing. This can be used for more stock buybacks, increasing the dividend or purchases
- Looking for "acquisitions at the right price and synergies". Translation: If it will not add to earnings this year they will not do it.

In short there is nothing happening at DOW that should dampen our enthusiasm for the company (if anything we should be getting more excited). Liveris has done a masterful job positioning DOW for the future. Each quarter DOW is creating more value for shareholders. It will not be long before Wall Street recognizes this and jumps on the bandwagon. Please be there first...

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