Dow Inc.

Intangible assets: Dow’s brands matter in certain specialty niches (silicones, coatings, adhesives) but most revenue is tied to commoditized polyolefins and intermediates where brand has little pricing leverage. Patents and formulations support pockets of differentiation but do not prevent substitution at scale.

Switching costs: Moderate in select downstream systems and long‑term supply contracts, but generally low in polyethylene and many intermediates; converters can and do mix suppliers. Network effects: None. Cost advantages: This is Dow’s most durable edge.

Its integrated North American footprint, advantaged ethane feedstock and world‑scale assets provide first‑quartile unit costs versus naphtha‑based peers, and the Path2Zero project aims to extend this with lower emissions intensity. However, the advantage is tempered by global overcapacity, Chinese new builds and weak European competitiveness.

Efficient scale: Regional olefins chains can exhibit efficient‑scale dynamics once incumbents rationalize capacity, and Dow is contributing to European rationalization by exiting higher‑cost sites, which may improve industry utilization over time. We weight cost advantage highest, then efficient scale, then switching costs, then intangibles.

Risks to durability include: prolonged global oversupply, policy/regulatory constraints on single‑use plastics, and potential technology shifts accelerating circular and bio‑based substitutes.

Dow is primarily a price‑taker across olefins, polyolefins and many intermediates. In 2025, local price fell year‑over‑year across segments and volumes softened with lower operating rates. Specialty businesses can pass through costs with a lag, but the consolidated margin structure remains cyclical and competitive.

Management’s path to margin improvement is mainly cost and mix, not list price increases: $2 billion of operating EBITDA uplift from efficiency and simplification plus footprint rationalization. Over a full cycle, advantaged assets can sustain above‑average spreads, but evidence of latent, controllable pricing power is limited.

Pending Path2Zero may one day enable premium, low‑emissions PE, but the market’s willingness to pay is unproven at scale.

Revenue, earnings and free cash flow are cyclical and sensitive to spreads, global GDP and capacity additions. TTM (FY 2025) revenue was ~$40 billion with a GAAP net loss of ~$2.6 billion and negative free cash flow driven by lower pricing and elevated capex.

End‑market diversity helps, but the largest segment (Packaging & Specialty Plastics) remains exposed to global PE cycles.

Near‑term visibility improves with cash and cost actions and European rationalization, but secular headwinds from U.S. and EU packaging EPR regimes and recycling mandates introduce long‑term demand and mix uncertainty for virgin resins.

We expect volatility until utilization rises closer to mid‑cycle, potentially around the time Path2Zero phases come online.

Liquidity is solid but leverage metrics have weakened through the trough.

As of early 2025, Dow had ~$8.4 billion of committed/available credit and net debt around the mid‑teens billions; by mid‑2025 and year‑end, rating agencies had the credit profile at BBB/Baa2 with a negative outlook. 2025 operating cash flow was ~$1.1 billion against ~$2.5 billion capex, producing roughly -$1.4 billion FCF.

The dividend was cut to 35 cents per quarter to preserve cash. Offsetting supports include ~$3 billion of proceeds from the Diamond Infrastructure Solutions transaction and a favorable CAD 1.62 billion Nova Chemicals judgment, plus ongoing European footprint reductions to lift run‑rate profitability.

Environmental and remediation accruals are meaningful (just over $1.0 billion at March 31, 2025) but manageable for a company of this scale. We view liquidity as adequate through the downcycle, though interest‑coverage and leverage are pro‑cyclical and depend on a recovery in spreads.

Recent actions show a more disciplined, best‑owner mindset: dividend reset to align with cycle, accelerated cost‑out, sale of noncore adhesives and creation of Diamond Infrastructure Solutions to monetize infrastructure while retaining operational control and access.

Management reduced 2025 capex by about $1 billion and delayed Path2Zero by two years, balancing long‑term returns with near‑term cash. Path2Zero is expected to deliver ~$1 billion mid‑cycle EBITDA and advance decarbonization of 20% of Dow’s ethylene capacity, but project returns remain exposed to timing and cycle risk.

Share repurchases appear de‑emphasized in the trough (authorization remains, with ~$931 million available at YE 2025) which is appropriate given negative TTM FCF. We score this above average for a commodity operator, with the caveat that heavy capex through 2029/2030 and EU exit costs will weigh on FCF until spreads normalize.

CEO Jim Fitterling has navigated multiple cycles, executed major portfolio moves and is taking assertive steps to simplify operations and raise structural profitability. CFO Jeff Tate, appointed in late 2023, brings deep internal experience and a pragmatic approach to balance sheet and portfolio management.

Governance and communication around the cycle and capital priorities have generally been clear, including the willingness to cut the dividend and delay Path2Zero to preserve flexibility. Execution risk remains, particularly delivering $2 billion of near‑term operating EBITDA uplift and meeting revised Path2Zero timelines.

Insider ownership is low and the company is not founder‑led, which slightly reduces alignment versus our highest‑scoring management teams.