What is DOW's Intrinsic value?

Dow Inc (DOW) Intrinsic Value Analysis

Executive Summary

As of June 2, 2025, Dow Inc's estimated intrinsic value ranges from $7.01 to $48.33 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $35.17 +26.8%
Discounted Cash Flow (5Y) $44.62 +60.9%
Dividend Discount Model (Multi-Stage) $48.33 +74.2%
Dividend Discount Model (Stable) $7.01 -74.7%
Earnings Power Value $44.67 +61.0%

Is Dow Inc (DOW) undervalued or overvalued?

With the current market price at $27.74, the stock appears to be significantly undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Dow Inc's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.93 0.96
Cost of equity 8.1% 10.3%
Cost of debt 5.1% 7.5%
Tax rate 22.8% 24.3%
Debt/Equity ratio 0.83 0.83
After-tax WACC 6.2% 8.2%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 7.2% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $42,964 (FY12-2024) to $52,392 (FY12-2034)
  • Net profit margin expansion from 3% to 3%
  • Capital expenditures maintained at approximately 5% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $45 $46,647M 82.2%
10-Year Growth $35 $39,964M 65.3%
5-Year EBITDA $20 $29,543M 71.9%
10-Year EBITDA $21 $30,213M 54.1%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 671.3%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 9.2%
  • Long-term growth rate: 3.5%
  • Fair value: $48.33 (74.2% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 10.3% (Low) to 8.1% (High)
  • Long-term growth rate: 2.5% (Low) to 4.5% (High)
  • Fair value range: $4 to $10
  • Selected fair value: $7.01 (-74.7% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $3,296M
Discount Rate (WACC) 8.2% - 6.2%
Enterprise Value $40,349M - $53,018M
Net Debt $15,105M
Equity Value $25,244M - $37,913M
Outstanding Shares 707M
Fair Value $36 - $54
Selected Fair Value $44.67

Key Financial Metrics

Metric Value
Market Capitalization $19608M
Enterprise Value $34713M
Trailing P/E 66.92
Forward P/E 16.60
Trailing EV/EBITDA 6.65
Current Dividend Yield 1003.15%
Dividend Growth Rate (5Y) -1.29%
Debt-to-Equity Ratio 0.83

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $10.55
Discounted Cash Flow (5Y) 25% $11.16
Dividend Discount Model (Multi-Stage) 20% $9.67
Dividend Discount Model (Stable) 15% $1.05
Earnings Power Value 10% $4.47
Weighted Average 100% $36.89

Investment Conclusion

Based on our comprehensive valuation analysis, Dow Inc's weighted average intrinsic value is $36.89, which is approximately 33.0% above the current market price of $27.74.

Key investment considerations:

  • Strong projected earnings growth (3% to 3% margin)
  • Consistent cash flow generation

Given these factors, we believe Dow Inc is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.