Why Dow Stock Sank on Monday

Key Points

• An analyst cut his price target on the storied chemical company.

• Dow's business is facing many challenges these days.

• 10 stocks we like better than Dow ›

Beaten-down chemical industry stock Dow (NYSE: DOW) absorbed another body blow on Monday. Investors traded out of the company's shares, on the back of an analyst's bearish adjustment, to the point where they closed the day more than 2% lower in value. In contrast, the S&P 500 (SNPINDEX: ^GSPC) ended up rising by 0.2%.

A cut to the chemical giant

The pundit behind the move was Jefferies' Laurence Alexander. Well before market open that day, he reduced his Dow price target to $23 per share from his preceding $28. He maintained his hold recommendation on the shares in the process.

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Image source: Getty Images.

Alexander's new take on Dow was due to several factors, including the company's lingering supply chain woes, according to reports. The analyst also wrote that there was a risk that a potential interest rate cut would take some time to result in increased demand for the company's wares.

On the spending side, Alexander opined that with such ongoing pressures, Dow management will be compelled to continue reining in capital expenditures. This, plus anticipated restructuring measures in 2026 and the following year, are likely to affect the company's fundamentals negatively.

Not a good time for the industry

Dow, a long-standing incumbent in the chemical sector, is a highly unfavored stock these days. Over the summer, the company cut its quarterly dividend in half; as this payout was a major draw pulling people into the stock, many investors sold on the news.

Globally, the industry is in a significant down cycle, in many ways still adjusting from oversupply at the start of this decade. The tariff policy of the current presidential administration isn't helping sentiment, either.

Given all that, Alexander's cautious move feels entirely justified.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group. The Motley Fool has a disclosure policy.