Brokerages optimistic on chemical makers Dow, DuPont in 2024 after 2023 hiccups

Looking back at 2023 as it draws to a close, chemical producers like Dow (NYSE:DOW) and DuPont (NYSE:DD) had a solid year despite persistent demand challenges, rising interest rates, and large destocking across end markets. While the sector didn’t quite keep up with the rally in the S&P 500, Dow (DOW) and DuPont (DD) advanced 9% and 12% respectively, while the

Materials Select Sector SPDR Fund ETF (XLB) gained 11%.

BMO Capital Markets, which expects the chemical sector to ‘outperform’ in 2024, said, for the chemical space, 2023 felt like a sprint through waist deep mud. However, while the economic outlook may be uncertain, but brokers are bullish about their prospects.

So how is the upcoming year looking?

BMO says DOW underperformed the chemicals group in 2023, posting a 12.8% total return compared to the group’s 18.8%, but 2024 should see the continued focus on costs after management works towards $1 billion in cost savings. It expect DOW to review the company’s global asset footprint to potentially exit some higher-cost, lower-return assets. In case of the chemical and materials maker DuPont, brokerage says the company should enjoy EBITDA growth of ~8% that translates into low teens EPS growth in 2024 with that accelerating into 2025. “More importantly, DD should benefit from a recovery in its E&I segment with semis/smartphone volumes expected to pick up,” it said in a note December 18.

In Goldman Sachs’ view, basic chemical stocks like DOW, is more interesting in 2024 than 2023 as volume rebound likely a midyear event. While market commentary is still weak, the set-up for 2024 is better than believed and when demand inflects, the restocking cycle could lead to far better than expected volumes.

Q4/2023 company forecasts

DuPont (DD) has cut its full-year revenue forecast as it struggles with lower demand across its businesses. Fourth-quarter margins could also take a hit as the company aligns inventory with demand, joining chemical makers such as Dow (DOW) and peer Eastman Chemical (EMN) in flagging pressure in the second half from weakness in key markets like China and Europe.

DuPont forecast annual earnings per share of $3.45, compared with prior expectations of between $3.40 and $3.50, and expects to buy back more shares next year. Dow on the other hand flagged a potential blow in the second half of the year, and expects Q4 sales in the range of $10 billion to $10.5 billion, the midpoint of which is below average analysts’ estimate of $10.33 billion.

Quantitative measures, Wall Street, and SA community

DuPont de Nemours receives a Buy rating from Seeking Alpha’s Quant Rating system and Wall Street analysts, while Dow gets a Hold from both the community.

Of the 18 analysts surveyed by Seeking Alpha in the past 90 days, 8 of them have a Strong Buy rating, 4 have a Buy rating, and 6 give DD a Sell rating. DD gets an A for profitability and a C+ for momentum.

In case of Dow, 3 analyst give the company a Buy rating. It receives an A for profitability and a B- for momentum.

Brokerage Evercore ISI concludes that, 2024 guidance season will be tough for most, and it is to be seen if 2H24 hopes and dreams materialize. Key themes include if chemical stocks can continue to outrun challenged near term (1H24 at least) fundamentals, can pricing hold across most specialty businesses, and the risks of being early and how to think about the margin of safety.