Dow Inc. (DOW Quick QuoteDOW – Free Report) is one of the most viewed stocks by Zacks.com visitors lately. So it might be worth looking at some of the factors that could affect the stock’s short-term performance.

Over the past month, materials science stocks have returned -4.3%, compared to the +5.6% change in the Zacks S&P 500 composite. During this period, the industry Zacks Chemical – Diversified, which includes Dow Inc., gained 1.6%. The key question now is: what could be the future direction of the title?

Although media reports or rumors of a material change in a company’s business outlook usually cause its stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately determine the buy and hold decision.

Revisions to earnings estimates

Rather than focusing on anything else, at Zacks we prioritize assessing change in a company’s earnings projection. Indeed, we believe that the fair value of its shares is determined by the present value of its future earnings streams.

We basically look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest trading trends. And if earnings estimates go up for a company, the fair value of its stock goes up. A higher fair value than the current market price stimulates investors’ interest in buying the stock, causing its price to rise. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

Dow Inc. is expected to post earnings of $1.90 per share for the current quarter, representing a year-over-year change of -30.9%. Over the past 30 days, the Zacks consensus estimate has changed by -7.1%.

For the current fiscal year, the consensus earnings estimate of $8 indicates a change of -10.9% from the prior year. Over the last 30 days, this estimate has evolved by -1.9%.

For the next fiscal year, the consensus earnings estimate of $7.18 indicates a change of -10.4% from what Dow Inc. was expected to report a year ago. Over the past month, the estimate has changed by -3.8%.

With an impressive externally audited track record, our proprietary stock rating tool – the Zacks Ranking – is a more conclusive indicator of a stock’s short-term price performance, as it effectively harnesses the power of earnings estimate revisions. . The magnitude of the recent change in the consensus estimate, along with three other factors related to earnings estimates, resulted in a No. 3 (hold) Zacks ranking for Dow Inc.

The chart below shows the evolution of the company’s consensus 12-month EPS estimate:

12 month EPS

Expected revenue growth

While a company’s earnings growth is arguably the best indicator of its financial health, nothing happens if it can’t grow its revenue. It is almost impossible for a company to increase its profits without increasing its revenue for long periods of time. Therefore, knowing the potential revenue growth of a business is crucial.

For Dow Inc., the current-quarter consensus sales estimate of $14.53 billion indicates a year-over-year change of -2.1%. For the current and future fiscal years, the estimates of $59.33 billion and $57.41 billion indicate variations of +7.9% and -3.3%, respectively.

Latest reported results and history of surprises

Dow Inc. reported revenue of $15.66 billion in the last reported quarter, representing a year-over-year change of +12.8%. EPS of $2.31 for the same period versus $2.72 a year ago.

Compared to the Zacks consensus estimate of $15.45 billion, reported revenue is a surprise +1.39%. Surprise EPS was +7.94%.

The company has exceeded consensus EPS estimates in each of the past four quarters. The company has exceeded consensus earnings estimates every time during this period.

Evaluation

Without considering the valuation of a stock, no investment decision can be effective. Crucial to predicting a stock’s future price performance is whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.

While comparing the current values ​​of a company’s valuation multiples, such as the price-to-earnings (P/E) ratio, the price-to-sales (P/S) ratio, and the price-to-cash flow (P/CF) ratio , along with its own historical values ​​help determine whether its stock is fairly valued, overvalued or undervalued, comparing the company against its peers on these metrics gives a good idea of ​​the reasonableness of the stock price .

The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to traditional and unconventional valuation metrics to rank stocks from A to F (an A is better than a B; a B is better than a C; and so on), is quite useful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.

Dow Inc. is rated A on this front, indicating that it is trading at a discount to its peers. Click here to see values ​​for some of the rating metrics that led to this rating.

Conclusion

The facts discussed here and plenty of other information about Zacks.com might help determine whether it’s worth paying attention to the market buzz about Dow Inc. However, its #3 Zacks ranking suggests it may work in line with the broader market of the short term.