DOW Fundamental Research Investment Analysis, The Dow Chemical Company

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The Dow Chemical Company (DOW)

The Razor's Edge

2-Year Price History

Recent Price
(2/13/2009)
$9.53
52-Week Price
$9.50 - $43.43
Market Capitalization
$8.8 Billion
Dividend Yield
6.30%
Most Recent Dividend
$1.68

About The Dow Chemical Company

The Dow Chemical Company is considered to operate in the Basic Materials sector. They specifically operate in the Chemicals-Major Diversified business segment contained within the Chemicals industry.

The Company is engaged in the manufacture and sale of chemicals, plastic materials, agricultural and other products and services.

A Word Of Caution

The Dow Chemical Company (DOW) has experienced a very significant loss in market value recently. Clearly this drop in price will have an impact on the valuation but the recent events that caused the drop may have not been fully factored into our analysis yet. When a stock loses value very quickly it could be a sign that there is a fear of bankruptcy.

Of course, you may proceed to review our research report for this security, but please be aware that our model may not reflect significant factors surrounding this company.

Therefore, (and as always), check additional sources and available information regarding DOW before making an investment decision.

Ockham's Rating

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DOW Revenue

For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at DOW through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 10 years are 0.66x and 0.43x respectively.

Utilizing this range we can see that DOW’s current Price to Sales per share ratio of 0.19x is significantly below its average levels historically. In fact, with a current price of $9.53, DOW is a full 66% below its average Price to Sales ratio at comparable sales levels. This is a rare occurrence and, when taken in context of the other areas of our analysis, can be a strong positive for our outlook for DOW.

DOW Cash Earnings

Looking at DOW specifically in their Cash Earnings capabilities, Ockham views DOW as significantly below its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 10 years of cash earnings levels for DOW to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 6.65 and a 4.33 low over the same period.

Now that DOW’s current price is $9.53 and its Price to Cash Earnings ratio is 1.23, we are very positive on its outlook from the cash earnings perspective. In fact, DOW is now trading a full 78% below its average historical Price to Cash Earnings ratio at these profit per share levels. When our clients ask us why DOW has great long term potential, the Cash Earnings levels to current stock is one of our primary reasons. But naturally, now we need for the overall market to recognize this disparity.

DOW Dividends

A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure of a company's inherent expectations.

Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from DOW against the historic high and low levels over an available data range. Because DOW has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In DOW’s case, the estimated annual dividend is $0.60 producing a current dividend yield of 6.30%. The highest dividend yield from DOW in recent history was 11.25% while the lowest dividend yield was 1.38%. DOW is not making us feel all that confident when their current dividend yield is below the historical median by 0.24%.

Peer Comparison

:

The Dow Chemical Company Industry Grouping

(2/13/2009)
Company Ticker Market Cap (Ml) Latest
Price
Price/Cash Earnings Price/Sales 5-Yr. Rev.
Growth Rate
5-Yr.
Avg. ROE.
Current 10-Yr. Range* Current 10-Yr. Range*
Peer Company Averages (not incuding DOW) 6.81 5.83 » 28.00 1.08 0.82 » 2.19 12.06% 19.29%
*10 year range does not include current year values
Rohm and Haas Company ROH $11.6 Billion $59.47 7.88 4.61 » 12.38 1.10 0.78 » 1.68 9.21% 15.50%
Air Products & Chemicals, Inc. APD $11.3 Billion $54.03 5.46 7.08 » 12.82 1.02 0.97 » 2.25 10.59% 16.18%
The Dow Chemical Company DOW $8.8 Billion $9.53 1.23 1.88 » 26.19 0.19 0.24 » 1.39 14.15% 21.62%
Agrium Inc. AGU $6.4 Billion $40.52 3.56 2.49 » 20.94 0.60 0.41 » 2.28 20.40% 13.97%
Sherwin-Williams Company SHW $5.5 Billion $46.94 7.28 5.34 » 25.12 0.69 0.52 » 1.13 9.08% 31.16%
Sigma-Aldrich Corp. SIAL $4.8 Billion $38.41 9.87 9.64 » 68.76 1.98 1.40 » 3.59 11.05% 19.64%
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2/13/2009 6:44 PM
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2/13/2009 9:48 AM
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2/9/2009 9:45 AM
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2/5/2009 10:32 AM
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2/3/2009 4:04 PM
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2/3/2009 9:31 AM
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2/3/2009 9:27 AM
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Key Fundamentals

DOW - The Dow Chemical Company Fundamentals
Price (2/13/2009) $9.53
Volume (2/13/2009) 18.1 Million
10 Day Average Volume 25.7 Million
13 Week Price Range $9.50 - $21.34
52 Week Price Range $9.50 - $43.43
LTM Revenue $57.5 Billion
 
Shares Outstanding (12/2008) 923.8 Million
Market Capitalization $8.8 Billion
Shares Held By Institutions 645.5 Million
Institutional Holders 1,034
% Shares Held By Institutions 69.90%
Earnings Per Share (EPS) $0.62
P/E Ratio 15.40
Book Value Per Share $20.71
 
Gross Margin 9.80%
Quarterly Dividend 0.60
Dividend Yield 6.30%
Beta 1.24
Fiscal Year Ends December