Dow engages in the provision of various materials science solutions. The company provides a portfolio of advanced, sustainable products for packaging, infrastructure, mobility, and consumer applications.A global chemical company, Dow offers ethylene, propylene and aromatics products. In addition, Dow provides coatings, adhesives, and sealants used in maintenance and protective industries, metal packaging, traffic markings, and manufactured silicone.The company faces challenges from soft demand due to weak global economic activities. A feeble recovery in China is impacting overall demand in Asia. Lower consumer spending due to inflationary pressures is also impacting demand in Europe. The Zacks RundownA Zacks Rank #5 (Strong Sell) stock, Dow (DOW) is a component of the Zacks Chemical – Diversified industry group, which currently ranks in the bottom 8% out of approximately 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months, just as it has over the past year.Stocks in the bottom tiers of industries can often be intriguing short candidates. While individual stocks have the ability to outperform even when they’re part of a lagging industry, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.Along with many other diversified chemical stocks, DOW shares have been underperforming over the past year while the general market returned to new heights. The stock is hitting a series of lower lows and represents a compelling short opportunity as we head further into the new year. Recent Earnings Misses & Deteriorating OutlookDow has fallen short of earnings estimates in two of the past three quarters. Just last month, the company reported (adjusted) breakeven fiscal fourth-quarter earnings, missing the $0.23/share Zacks Consensus Estimate by -100%.In the prior-year period, Dow had delivered earnings of 43 cents per share. Revenues of $10.41 billion fell 2% year-over-year and also fell short of analysts’ projections.CEO Jim Fitterling stated that until demand picks up, managing the business is all about cutting costs and protecting cash flow. Dow will slash up to $500 million in capital spending in 2025 and cut approximately 1,500 jobs as the company attempts to fight through a sluggish global economic backdrop.The chemical product distributor has posted a negative trailing four-quarter earnings surprise of -21.1%. Consistently falling short of earnings estimates is a recipe for underperformance, and DOW is no exception.The company has been on the receiving end of negative earnings estimate revisions as of late. Looking at the current quarter, analysts have slashed estimates by a whopping -41.82% in the past 60 days. The fiscal Q1 Zacks Consensus EPS Estimate is now $0.32/share, reflecting negative growth of -42.9% relative to the year-ago period.
Image Source: Zacks Investment ResearchFalling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see. Technical OutlookAs illustrated below, DOW stock is in a sustained downtrend. Notice how the stock has made a series of lower lows, widely underperforming the major indices. Also note that shares are trading below downward-sloping 50-day (blue line) and 200-day (red line) moving averages – another good sign for the bears.
Image Source: StockChartsDOW stock has experienced what is known as a “death cross,” whereby the stock’s 50-day moving average crosses below its 200-day moving average. Shares would have to make an outsized move to the upside and show increasing earnings estimate revisions to warrant taking any long positions. The stock has fallen nearly 25% over the past year alone. Final ThoughtsA deteriorating fundamental and technical backdrop show that this stock is not set to make its way to new highs anytime soon. The fact that DOW is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of DOW until the situation shows major signs of improvement.More By This Author:Bull Of The Day: Kratos Defense & Security Solutions Bear Of The Day: Gsk Plc Buy Amazon Ahead of Earnings Today on Strong EPS Estimate Revisions
