Dow Looks Solid at $32 Helped by Strong Pricing, Electronics Segment

The Dow Chemical Company (NYSE:DOW) has had a good year so far, outperforming the broader indices. The company recently increased the prices of Dow Electrical & Telecommunication (Dow E&T) products, which should help put a breather to its divisional margins that have been under pressure for some time now.

We currently have a Trefis price estimate of $32 for Dow Chemical, which is in line with the market price.

In another development, Dow Electronic Materials (a unit within the company) won the award for New Product Introduction (NPI) for its product CIRCUPOSIT 4126 Universal Wweller from Printed Circuit Design and Fab Magazine (PCD&F) for its high reliability and cost effectiveness. ^[1]

See our full analysis of the Dow Chemical stock here

Dow Electrical & Telecommunications Raises Prices

Dow Electrical & Telecommunications (Dow E&T), which falls under the broader Performance Materials division, raised the prices of its products in the range of $0.06-$0.12 per pound, which will be effective July 1. ^[2] This is the second time Dow E&T has revised the prices of its products this year. Earlier in the year, the prices were increased by up to $0.17 per pound. The move should help the company maintain margins for its division which had been deteriorating in the last few quarters. Overall, the broader division Performance Plastics & Materials contributes 60% to the company’s valuation, according to our estimates.

Helped by the price increase, we expect the adjusted EBITDA margins for 2012 to be around 13.5%. Margins were under pressure in 2011 and early 2012 due to a combination of soft pricing, weak demand for Dow Performance Packaging and lower naphtha-based margins in Europe and Asia/Pacific. However, the company is also benefiting from lower feedstock and energy costs and higher ethane-based margins in the U.S. Gulf Coast, and we expect the company to maintain its margins in the coming years.

CIRCUPOSIT 4126 Universal Sweller Wins Award

This is the third year that a product from Dow Chemical has won this award. Electronic and Functional materials is the second biggest division of the company and contributes around 18% to the total stock price, per our estimates. Some of the other prominent materials in this division include AUROLECTROLESS immersion gold process, EPIC immersion photoresists, Acrolein derivatives, ACUMER scale inhibitors, dispersants and others. The market for electronic materials is seeing solid growth helped by a strong demand for smartphones, PDAs and laptops. We expect the market size to grow at an annual rate of 12.5% in the coming years, reaching $71 billion by the end of our forecast period.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Dow Electronic Materials Wins New Product Introduction Award, eon.businesswire.com, May 30,2012 [↩]
2. Dow Electrical & Telecommunications announces price increase, yourindustrynews.com, May30,2012 [↩]