Last summer Andrew Liveris predicted Dow Chemical (DOW) would earn “in excess” of $2 per share at the next industry trough. Last fall that was increased to $3 a share and in this winter, “north of $3 per share”. Yesterday Liveris supplied new numbers.
$3.50 per share is the latest number. It should be noted that only takes into account 3% volume growth that, without the commodity business that will be sold, looks painfully conservative. Consider Dow Agro, which will constitute almost 50% of earnings after the commodity sale is growing at a double digit rate, 3% looks like a cake-walk. The specialty business, the other main driver after the commodity sale last year grew 8%.
If we just take a slight discount to current growth rates then we are looking at $4 a share rather easily.
Looking down the road a bit, 2005 was the last industry “peak”. 2015 will be the next. Liveris yesterday said Dow ought to earn in excess of $10 a share at that time. If we take a typical 12 times earnings multiple (for chemical companies) we arrive at $120 a share for Dow stock. One also has to account for the current 4.5% yield that is growing.
Liveris said Dow will about $57 billion in cash between 2008 and 2015 and approximately 70% of this will be generated through cash from operation. Liveris intends to use roughly $29 billion of it toward acquisitions and share buybacks. Just under 25% of it will go into dividends. That gives us $14.25 billion for dividends $15 a share based on Dow’s 930 million shares currently outstanding. One also has to take into account the massive share repurchase expected once the Kuwait deal closes. Liveris has consistently alluded to its likelihood. Even if just $10 billion of the $29 is used for that, it would take just under 1/3 of Dow’s stock off the market.
Doing so would cause the per share dividend calculation to increase $5 per share in the example above.
The rest will be used for capital spending.
Disclosure (“none” means no position):Long DOW
