Investors generally respond positively to stock upgrades and negatively to downgrades. However, recent ratings changes from BofA Securities have produced unexpected outcomes for U.S. chemical stocks.

Analyst Steve Byrne, in a unique move, downgraded DuPont shares from Buy to Sell. This decision deviates from the usual progression of rating tiers. As a result of this downgrade, DuPont stock experienced a decline.

Conversely, Byrne upgraded shares of Dow Inc. from Hold to Buy. Surprisingly, this upgrade did not result in an increase in Dow’s stock price.

Despite the downward movement of DuPont and Dow shares, Byrne remains optimistic about the petrochemical industry. Dow is a significant producer of plastics and natural gas and oil-derived products. According to Byrne, petrochemical margins and volumes have bottomed out in the second half of 2023. The analyst predicts a 50% Ebitda growth by 2025 compared to 2023 levels. (Ebitda refers to earnings before interest, taxes, depreciation, and amortization). FactSet data indicates that Dow is expected to generate around $5.4 billion in Ebitda in 2023.

Byrne has also increased his price target for Dow stock to $60 per share, up from $57.

DuPont Concerned About Legal Liabilities

DuPont is facing potential legal liabilities due to the presence of PFAS chemicals in groundwater. The cleanup and litigation processes are impacting not only DuPont but also Chemours and 3M. Despite this concern, analyst Byrne increased his price target for DuPont shares to $80 from $78.

Celanese Rating Downgraded

Byrne has also downgraded Celanese from Hold to Sell. However, due to the stock’s strong performance with a 20% increase over the past six months, Byrne raised the price target to $134 from $125. In midday trading, Celanese stock was down 2.3%.

Falling Incomes Affect FMC

Furthermore, agricultural chemical maker FMC saw its rating drop from Hold to Sell. Byrne’s reduced price target for FMC is now $57, down from $60. The concern comes from the impact of falling incomes for farmers on the pricing and volumes of companies like FMC. In midday trading, FMC stock was down 1.8%.

Dow Rating Upgraded, Ecolab Holds Steady

Byrne also upgraded Dow stock while maintaining a Hold rating on Ecolab. The price target for Dow was increased to $216 from $185 per share. On the other hand, Ecolab stock remained relatively unchanged in midday trading.

Chemical Stocks Face Investor Hesitation

Investors showed hesitancy in purchasing chemical stocks on Tuesday, regardless of the rating changes.

Analyst Ratings and Buy-Rating Ratio

Following the recent rating changes, approximately 22% of analysts covering Dow stock rate it as a Buy. This stands in contrast to the average Buy-rating ratio of about 55% for stocks in the S&P 500. As for DuPont, its Buy-rating ratio now sits at around 63%. These two rating changes have affected the overall Buy-rating ratio.

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