President Obama recently launched the Advanced Manufacturing Partnership (AMP), a national effort to bring together industry, universities and the federal government to invest in emerging technologies. Andrew Liveris, Chairman & President of Dow Chemicals, will lead the AMP, which aims to create high quality manufacturing jobs and enhance competitiveness of the U.S. manufacturing industry in the global environment. We think Dow Chemicals will likely benefit from this initiative as it’s a major manufacturer of high-performance materials, agricultural products, plastics (polyethylene and polypropylene) and industrial chemicals. Dow Chemicals competes with specialty chemicals manufacturer such as BASF and DuPont (NYSE:DD), petrochemicals firms such as Exxon Mobil (NYSE:XOM), SABIC and Sinopec and with global seed companies such as Monsanto (NYSE:MON).
We have a $45 price estimate on Dow Chemicals, which is roughly at a 25% premium to the current market price.
AMP Should Boost U.S. Manufacturing Capabilities
The U.S. Government is planning an initial investment of $500 million to jump-start the program. The key objectives of the AMP include building domestic manufacturing capabilities in critical national security industries (such as advanced composites, alternative energy and metal fabrication), developing innovative and energy efficient manufacturing processes and reducing the time to develop and launch advanced materials. The central motive behind the AMP is to create additional jobs in the U.S. manufacturing sector as the economy is still reeling under a 9% unemployment rate, high energy prices and a weak recovery in the housing sector.
Dow’s Performance Materials/Chemicals Business Poised to Gain from AMP
The objectives outlined for the AMP have the potential to positively impact Dow’s performance chemicals & materials division, which constitutes over 45% of the Trefis price estimate for its stock.
The efficiency building initiatives of the AMP should cut fabrication costs for advanced materials. Additionally, Dow Chemicals has the opportunity to take advantage from additional U.S. government investment in the composites and alternative energy industry (such as solar materials and batteries), which increasingly faces competition from Chinese specialty chemical companies. As part of the AMP, Dow will develop solar, battery and agricultural products and will also build new propylene and ethylene plants in Texas.
Disclosure: No positions