By Sam Boughedda
They assumed coverage of Dow and also increased the firm's price target on the stock to $68 per share.
The firm expects 2023 to be a trough year for earnings "as the pricing/margin headwind from new capacity in several derivatives (polyethylene [PE], methylene diphenyl isocyanate [MDI]) dissipates."
"While we remain concerned that demand may surprise to the downside in 2023 (we remain below consensus), we believe the risk/reward of higher demand for several of DOW's commodities is skewed favorably in 2024+," analysts write.
They also lifted the firm's price target on LYB to $109 per share, stating that similar to their forecast for DOW, they expect 2023 to represent a near-term trough for earnings for LYB due to weaker polyethylene earnings.
"Recently constructed capacity (propylene oxide) could offer upside if a commodity price recovery happens quicker than expected," the analysts said. "Like our estimates for DOW, our forecasts for LYB remain below consensus given our concern that demand and integrated polyethylene margins could surprise to the downside. However, we believe that investors will continue to ascribe a higher multiple to LYB given trough earnings in 2023."
Overall, the firm believes the domestic polyethylene market will likely reach trough conditions in 2023, but they expect investors to look optimistically to 2024 and further ahead while they also see the recent capacity wave for commodities (polyethylene, MDI) to be a "headwind for pricing in 2023."
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