US Chemicals
Taking a Step Back on Petchems; Downgrade DOW, LYB, and WLK
BofA Global Research / BofA Securities Date: April 6, 2026 Sector: Equity, United States, Chemicals Report type: Rating Change
Analysts
- Matthew DeYoe, CFA
- Rock Hoffman
- Hakim Sanfo
Rating Change Summary
BofA is downgrading DOW, LYB, and WLK after strong year-to-date share price performance, which it believes was driven by unsustainable market tailwinds tied to the Iran conflict and the resulting petrochemical price spike.
New vs. Old Ratings and Price Objectives
| Ticker | New Rating | New PO | Old Rating | Old PO |
|---|---|---|---|---|
| DOW | Underperform | 35 | Neutral | 31 |
| LYB | Underperform | 68 | Neutral | 55 |
| WLK | Neutral | 119 | Buy | 115 |
Investment Thesis
Downgrading petchem stocks as the YTD run is extended
BofA argues that the sharp rally in petrochemical names has created an unfavorable risk-reward setup. While the Iran conflict has created meaningful tailwinds for earnings and cash generation, the firm does not want to capitalize temporary “overearning” into long-term value.
The firm expects that as markets normalize:
- investor focus will shift back to more normal or sustainable earnings power, and
- the conflict will likely resolve without enough asset closures to structurally tighten global supply.
As a result, BofA sees downside risk to DOW and LYB price objectives and moves those names to Underperform, while WLK is moved to Neutral.
Price Rally Through Q2, but Expected Unwind Into 2027
BofA’s updated pricing deck assumes broad-based chemical price inflation, including approximately +35 cents per pound for U.S. polyethylene, with increases staged across March, April, and May. The report also assumes steep increases for PVC and other polymer/intermediate chains.
A large share of this margin expansion is expected to accrue to North American production, though European operations may also benefit for a period as trade dislocations take time to normalize.
The firm expects:
- prices to begin declining in the middle of the year,
- 2026 year-end pricing to remain above January levels,
- and a further decline in 2027.
Because 2026 may still be unusually strong, BofA focuses more on 2027 and 2028 as the better representation of normalized earnings.
The report notes that polyethylene pricing still implies a premium to pre-war levels through 2027, reflecting both:
- a steeper cost curve from higher oil prices, and
- an added geopolitical risk premium.
PMIs Back in Focus? What About Supply-Demand?
BofA argues that investors will increasingly have to think about the post-conflict macro backdrop.
Downstream customers are being asked to absorb significant inflation, which raises stagflation concerns and is not constructive for end demand. In that framework:
- the stronger 2026 becomes for petchem companies,
- the weaker 2027 may ultimately look as normalization sets in.
If the unwind is fast, sentiment may shift back toward PMI inflection and support multiples. But regardless of timing, BofA believes the most likely outcome is that the conflict ends without meaningful structural capacity loss, which would leave global markets returning to excess supply.
That would be negative for earnings resilience.
Raising Estimates and POs; LYB Benefits the Most
BofA is raising earnings forecasts for DOW, LYB, and WLK to reflect near-term market dislocations and a somewhat higher normalized energy backdrop in 2027 and 2028.
Even with those higher forecasts, the revised price objectives still do not imply attractive returns.
Revised View
- DOW: Underperform
- LYB: Underperform
- WLK: Neutral
Updated Price Objectives
- DOW: 31
- LYB: 55
- WLK: 115
BofA sees LYB as the biggest beneficiary of current conditions.
What Are We Pricing In and What Is the Market Expecting?
BofA frames fair value using 2027 and 2028 valuation multiples and earnings, then compares those values with current market prices to estimate how much “excess value” investors are assigning to temporary peak earnings.
The report treats overearning as fleeting and effectively applies only a modest multiple to it. BofA’s base assumption is that peak earnings persist for roughly two quarters before reverting toward normalized levels.
Exhibit: Excess Valuation vs. Excess EBITDA
| Metric | LYB | DOW | WLK |
|---|---|---|---|
| Shares Outstanding (mn) | 323.0 | 720.2 | 128.3 |
| Market Price | 76.50 | 41.00 | 117.00 |
| Market Cap ($mn) | 24,710 | 29,528 | 15,016 |
| Price Objective | 68 | 35 | 119 |
| Price Objective Market Cap | 21,964 | 25,207 | 14,888 |
| Excess Market Cap | 2,746 | 4,321 | -257 |
| Peak Quarterly EBITDA | 1,809 | 2,020 | 795 |
| Normalized EBITDA | 1,047 | 1,386 | 538 |
| EBITDA Differential | 763 | 634 | 258 |
| Excess Mkt Cap / Excess EBITDA | 3.6 quarters | 6.8 quarters | -1.0 quarters |
| Period of Overearning Forecast | 1.0 years | 1.7 years | -0.2 years |
Key takeaway
BofA estimates that current prices imply:
- nearly 4 quarters of peak earnings in LYB,
- roughly a year and a half of overearning in DOW,
- and near fair value for WLK.
WLK screens closer to fair value partly because its building products segment provides some support even as commodity profits fade.
If There Aren’t Lots of Closures, We Go Back to Oversupply
A major point in the report is that the current 2026 bull run in commodities is very different from the post-COVID petrochemical cycle.
During COVID:
- demand was supported by shifts in consumer behavior and stimulus,
- and supply disruptions occurred against a different demand profile.
Today:
- higher rates and inflation are weighing on demand,
- the consumer backdrop is more fragile,
- and supply additions, especially from China, are much larger.
BofA notes that global petrochemical utilization rates were already weak entering this disruption, around the high-60s to low-70s range, compared with higher pre-COVID levels.
The report argues that in polyethylene specifically, the market would need roughly 2 million tonnes of closures by 2026 to create a truly tight market backdrop. BofA sees that as unlikely.
So unless there is a very large amount of permanent capacity rationalization, the industry likely returns to oversupply once the current disruption fades.
Estimate Revisions
DOW
BofA raised:
- 1Q26 EBITDA to 741mn
- FY26 EBITDA to 3,562mn
The increase is driven by stronger olefins and polyolefins pricing as crude rises relative to U.S. natural gas costs.
FY27 and FY28 estimates were also revised higher, though much less dramatically:
- FY27: +21%
- FY28: +6%
BofA still expects commodity pricing to normalize over time, but notes that DOW should receive some support from cost initiatives in 2027 and 2028. The report models roughly $1 billion in cumulative cost cuts between 2026 and 2028.
DOW valuation
The $35 PO is based on a 6.5x FY26 EV/EBITDA multiple, down from a prior 9x framework.
LYB
BofA raised:
- 1Q26 EBITDA to 483mn
- FY26 EBITDA to 2,546mn
The increase reflects sharp improvement in product margins and market shortages.
FY27 and FY28 estimates were also raised:
- FY27: +27%
- FY28: +10%
BofA expects product pricing to normalize through 2H26 and into 2027, with prior forecasts already embedding a recovery in 2027 and 2028.
LYB valuation
The $68 PO is based on a 6.0x FY26 EBITDA multiple. BofA also notes that the revised valuation is roughly consistent with a 6.5x multiple on 2028 EBITDA and broadly in line with historical average trading ranges.
WLK
BofA raised:
- 1Q26 EBITDA to 357mn
- FY26 EBITDA to 1,681mn
The increase is driven by stronger polyolefins and PVC margins, though partly offset by weaker assumptions for the building products segment.
FY27 and FY28 were revised higher by:
- FY27: +8%
- FY28: +3%
WLK valuation
The $119 PO is based on an 8.0x FY26 EBITDA multiple, down from a prior 10x. BofA says this roughly reflects:
- a 6.0x multiple for the commodity business, and
- an 11x multiple for building products.
EPS and PO Changes
| Company | 2026E EPS (New) | 2027E EPS (New) | 2028E EPS (New) | PO (New) | 2026E EPS (Old) | 2027E EPS (Old) | 2028E EPS (Old) | PO (Old) |
|---|---|---|---|---|---|---|---|---|
| DOW | 2.02 | 1.43 | 1.87 | 35 | -0.49 | 0.47 | 1.52 | 31 |
| LYB | 9.12 | 6.16 | 6.50 | 68 | 2.09 | 3.93 | 5.48 | 55 |
| WLK | 5.85 | 3.71 | 5.27 | 119 | 1.70 | 2.85 | 4.85 | 115 |
EBITDA Changes
| Company | 2026 New | 2027 New | 2028 New | 2026 Old | 2027 Old | 2028 Old | Delta 2026 | Delta 2027 | Delta 2028 |
|---|---|---|---|---|---|---|---|---|---|
| DOW | 5,973 | 5,355 | 5,788 | 3,562 | 4,437 | 5,475 | 68% | 21% | 6% |
| LYB | 5,080 | 4,165 | 4,311 | 2,546 | 3,277 | 3,903 | 99% | 27% | 10% |
| WLK | 2,322 | 2,032 | 2,269 | 1,681 | 1,887 | 2,200 | 38% | 8% | 3% |
Stocks Mentioned
| BofA Ticker | Bloomberg Ticker | Company | Price | Rating |
|---|---|---|---|---|
| DOW | DOW US | Dow Inc. | 41.0 | Underperform |
| LYB | LYB US | LyondellBasell Industries | 76.5 | Underperform |
| WLK | WLK US | Westlake Corp. | 117.0 | Neutral |
Investment Rationale
Dow Inc.
BofA says DOW has appreciated materially year to date because the Iran conflict has disrupted petrochemical markets and lifted earnings power. While those earnings bring meaningful cash benefits, BofA does not believe they should be capitalized as durable. The stock looks extended versus a more normal earnings backdrop, so the rating is Underperform.
LyondellBasell Industries
BofA gives essentially the same rationale for LYB: strong year-to-date appreciation tied to temporary market dislocations and elevated earnings, but not something the firm wants to capitalize permanently. The stock is therefore rated Underperform.
Westlake Corp.
WLK has also appreciated meaningfully, but BofA believes the stock more fairly reflects underlying value after the rally. With limited upside to the revised price objective and a more balanced risk-reward, the rating is Neutral.
Price Objective Basis and Risks
DOW
The $35 PO is based on a 6.5x 2026E EV/EBITDA multiple.
Downside risks
- new competitive capacity additions
- further stagnation in global demand
- higher U.S. energy costs
Upside risks
- better plastics fundamentals
- new product growth
- additional productivity gains
- higher oil prices
- weaker USD
LYB
The $68 PO is based on a 6.0x multiple on 2026E EBITDA.
Upside risks
- stronger global polyethylene demand
- higher oil prices
- lower U.S. NGL prices
Downside risks
- lower oil prices
- higher natural gas and feedstock costs
- weaker global economic growth and softer polyethylene demand
WLK
The $119 PO is based on an 8.0x 2026E EV/EBITDA multiple.
Downside risks
- no meaningful upturn in PVC/chlor-alkali pricing and margins
- faster-than-expected capacity expansion
- deeper trough in polyethylene margins
- broader macro weakness, especially in emerging markets
Upside risks
- continued gains in building products
- inflection in chlor-alkali or polyethylene pricing
- better macro outlook
- more favorable capacity developments
US Chemicals Coverage Cluster
Buy
- Albemarle (ALB)
- Axalta Coating Systems (AXTA)
- Bunge Limited (BG)
- Celanese (CE)
- Corteva (CTVA)
- Eastman Chemical (EMN)
- Ecolab (ECL)
- Element Solutions (ESI)
- International Flavors & Fragrances (IFF)
- Linde (LIN)
- Olin (OLN)
- RPM International (RPM)
- Sigma Lithium (SGML)
Neutral
- Air Products (APD)
- DuPont (DD)
- FMC (FMC)
- Nutrien (NTR)
- PPG Industries (PPG)
- Sherwin-Williams (SHW)
- Mosaic (MOS)
- Westlake (WLK)
Underperform
- Archer-Daniels-Midland (ADM)
- CF Industries (CF)
- Dow (DOW)
- Green Plains (GPRE)
- Huntsman (HUN)
- LyondellBasell (LYB)