BofA Downgrades Dow, LyondellBasell to Underperform
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- Bank of America downgraded Dow and LyondellBasell to 'Underperform' and Westlake Chemical to 'Neutral,' citing concerns that recent share price gains may not be sustainable.
- The three chemical stocks had rallied 60% to 80% year-to-date before the downgrades, gains BofA attributed in part to 'unsustainable tailwinds' linked to the ongoing conflict in Iran.
- BofA simultaneously raised its price targets despite the rating cuts: LYB to $68 from $55, DOW to $35 from $31, and WLK to $119 from $115, while also lifting earnings forecasts for all three to reflect current market conditions and a higher energy price backdrop.
- As of Monday afternoon, LYB traded at $78, DOW at $41, and WLK at $118, meaning each company is already trading above BofA's revised targets — particularly LYB, which sits roughly 13% above its $68 target.
- BofA analysts warned that any resolution of regional conflicts without structural changes in industry capacity could trigger global oversupply, pressuring petrochemical prices and earnings.
- The bank expects investor attention to shift away from near-term, dislocation-driven profits toward 'normal' earnings profiles by 2027 and 2028.
Why it matters: BofA is sending a contradictory signal — cutting ratings while raising price targets — because the three stocks are already trading above those revised targets, with LYB at $78 versus a $68 target. The call effectively tells investors the 60-80% rally has overshot fundamentals and that petrochemical oversupply will reassert itself once the Iran-linked tailwinds fade.
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