As oil prices soar, JPMorgan Chase upgrades its rating, and Dow Jones component stocks surge by 4.5%

Investing.com - Dow Inc. (NYSE:DOW) stock rose 4.5% on Friday, after JPMorgan upgraded its rating to Overweight and raised the target price from $26 to $40. This is the third rating upgrade for the chemical manufacturer this week, following similar actions by BMO and KeyBanc.

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These rating upgrades come as crude oil prices hit their strongest weekly gains since spring 2020, driven by ongoing military actions by the U.S. and Israel against Iran, disrupting shipping and energy exports through the Strait of Hormuz. The conflict has entered its second week, leading to the closure of this vital waterway for commercial traffic.

JPMorgan analyst Jeffrey Zekauskas noted in his upgrade report that the combined profit margins of North American chemical companies typically change by 4-5 cents per pound for every $10 change in crude oil prices per barrel. “For Dow, which sells approximately $20-25 billion worth of advantaged ethylene derivatives annually, EBITDA would reach about $1 billion,” Zekauskas wrote. “Dow has about 730 million shares outstanding, so the economic benefit to Dow is approximately $1.35 per share.”

The analyst added, “In our view, EBITDA growth driven by disruptions in the chemical or fertilizer markets has a basic capitalization multiple of 1x. Events may tighten the market, leading to higher product prices, and when the impact of the event subsides, the market will return to normal.”

Dow’s stock closed at $33.72 yesterday.

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