Value, Dow Chemical and Its Next Expansion

Eastman Chemical (EMN) a basic chemical company, currently $4 off its 52-week low, trades with a forward P/E of 11, a PEG ratio of 1.8 and EV/EBITDA of 5.9.

Eastman expects earnings to more than double in the next five years, going from roughly EPS of $5 to $6 in 2008 to $10 to $11 in 2012. If that happens, Eastman should trade north of $110 by 2012 based on the above metrics.

Specialty chemical maker, Huntsman (HUN), trades with a forward P/E of 15 and an EV/EBITDA of 9.1.

Dow Chemical (DOW), the largest chemical producer in the world trades with a forward P/E of 12.01, a PEG ratio of 2.22 and EV/EBITDA of 6.807. The company also sports a large and growing dividend of 4.9%. Now Dow cannot technically be classifieds as a "specialty" chemical maker until after the Rohm & Hass deal closes and the Kuwait deal is finalized. Q4 or Q1 2009 should be the time frame for both.

Dow currently is valued in the middle of the two since it isn't really either at this point. Once the above deals close, Dow's valuation will move towards Huntsman's which ought to push a 30% move into the stock just based on the re-valuation.

Perhaps this what Berkshire's (BRK.a) Warren Buffet saw when he became the company's largest shareholder?

On another front. After the Rohm & Hass deal is finalized, look for Dow to begin to expand operations in India. Dow currently imports most of its products to India, but has ts sites set on changing that. "The country is attractive enough to invest...it could be large," Dow Chemical International President and CEO Ramesh Ramachandran said recently. "For us, large could be billions of dollars," he said when asked to specify. "At some point we have to start manufacturing here, particularly for specialty chemicals," he finished.

Specialty is Rohm and the direction CEO Andrew Liveris is taking the company..


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