Dow upgraded by Bank of America as higher oil prices boost chemical outlook

Bank of America Securities on Monday upgraded Dow Inc. (DOW) to Neutral from Underperform, citing improving chemical prices, expectations for more persistent energy inflation and signs that the company's earnings may be stabilizing.

Analyst Matthew DeYoe raised his price objective on Dow (DOW) to $31 from $29, representing about 3.6% upside from the stock's latest price of $29.93. The upgrade reflects a more favorable outlook for petrochemical producers amid continued geopolitical instability in the Middle East.

Higher crude oil prices have helped support prices for chemicals such as polyethylene, a widely used plastic found in packaging and consumer products. Polyethylene prices rose 5 cents per pound in September, while prices for ethylene glycols, used in products ranging from polyester fibers to antifreeze, also strengthened.

For investors, the upgrade suggests that rising energy prices could provide an unexpected earnings boost for Dow (DOW), even as higher oil costs threaten profitability in other industries. Oil-linked chemical producers face higher production costs when crude prices rise, potentially improving Dow's competitive position. China's return to being a net importer of chemicals could further support demand and pricing.

DeYoe increased his fourth-quarter earnings before interest, taxes, depreciation and amortization forecast to $1.45 billion, above the $1.38 billion consensus estimate. The analyst expects the improved pricing environment to help Dow exceed market expectations when it provides fourth-quarter guidance.