Dow Fair Value $39: New Products, Emerging Markets Drive Growth

Dow Chemical (NYSE:DOW) is one of the major players in the fast-growing performance chemicals and materials market, which is expected to bring the next wave of growth in the chemicals market. Performance chemicals and materials consist of specialty chemicals that are used in unique applications. They are used in three broad segments: industrial coatings and infrastructure, electronic and specialty materials and industry-specific products. Dow currently has a 5.93% share in this market. Going forward, we expect the company to increase its performance chemicals and materials market share to about 7.5-8%, mainly driven by its new products and growth in emerging markets.

Dow Chemicals competes with companies such as PPG Industries (NYSE:PPG), 3M (NYSE: MMM) and Dupont (NYSE: DD). We currently have a Trefis price estimate of $39 for Dow Chemical’s Stock, which is 10% above the current market price.

See our full analysis of the Dow Chemical stock here

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Expected Launch of New Market Leading Products

Dow has said that its research and development efforts have crystallized into new products that it will launch in the coming years. These products are expected to provide superior performance to industrial consumers compared to the traditional chemicals in use.

The most promising products include:

• ENLIGHT polyolefin encapsulant films: These are designed to extend the life of solar panels and help solar module manufacturers provide greater stability and extended service life.
• Ecolibrium biobased plasticizers: These are developed by Dow Electrical & Telecommunications and are produced from virtually 100% renewable resources. These can be used in flexible vinyl compounds to help cable makers and durable goods original equipment manufacturers reduce their carbon footprint (based on LCA testing).
• Polyolefin elastomer for TPOs: These will be used in automotive interior and exterior components. They offer higher thermplastoc polyolefins (TPO) stiffness and has shown to help reduce total weight of a part as much as 10%.

These products have the potential to significantly improve Dow’s market share in performance chemicals and materials.

Expansion in Emerging Markets Should Boost Sales

Dow is expanding its capacity in most emerging markets due to rising demand in these regions. In the second half of 2011, Dow Corning opened a new facility for manufacturing silicones in the Jiangsu province in China. It is also beefing up its sales and distribution network in China.

Since many emerging economies have also started manufacturing for domestic consumption, Dow’s effort to supply them with performance chemicals will open new markets, which will help it increase its market share.

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