Is Dow Chemical Likely to Outperform?

With shares of The Dow Chemical Company (NYSE:DOW) trading at around $32.30, is DOW an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Dow Chemical is getting slammed after reporting Q4 results. The stock closed down 6.96 percent today. Q4 EPS came in at -$0.61, which missed expectations and is a big drop from -$0.02 for the same quarter last year. Dow Chemical took charges of $990 million for the quarter. Without restructuring and impairment charges, EPS is $0.33. Q4 revenue came in at $13.92, which beat expectations. Gross margin was 14.2 percent, which was an improvement of 160 basis points year-over-year. Operating margin was 4.7 percent, which was an improvement of 110 basis points year-over-year. Net margin was -4.5 percent, which was a 500 basis point decline year-over-year.

FY2012 EPS came in at $0.70, which is a 65 percent drop compared to last year. Excluding one-time items, EPS is $1.90, but that would still be short of 2011 EPS, which was $2.05. FY2012 revenue came in at $56.80 billion, which is also weaker than 2011. Q1 estimates are $0.65 EPS and $14.79 billion in revenue. FY2013 estimates are $2.42 EPS and $58.99 billion in revenue.

Dow Chemical is in the midst of a cost-cutting program worth $2.5 billion. At least 2,400 jobs will be cut, and at least 20 plants will be shut.

Let’s take a look at some more important numbers prior to forming an opinion on the stock…