The firm also increased Dow's price target to $60 from $47 per share. Dow shares were rising 2.21% to $55.01 in premarket trading on the news.
"Domestic PE outages, rising oil values lifting Asian PE values, good demand in China, increased opportunities for North American producers to ship PE to Asia because of rising global shipping costs and logistics issues, and continued good domestic demand have led to a snug market," analyst Jeffrey Zekauskas said.
The domestic polyethylene market is tight, and there is "little chance" that prices will be lower despite market expectations. Business conditions in the middle of December for commodity chemicals look much better than they did two weeks before, according to Zekauskas.
The firm expects polyethylene prices to remain flat for December and January with a $75 probability with a 25% probability that they might be higher.
"We do not believe that this more favorable price outlook is priced into Dow shares. Additionally, Dow is supported by its large, sustainable dividend yield of 5.2%. We expect Dow to throw off 8.5% of its share price in free cash for 2022. Dow trades at an 8.2x EBITDA multiple for 2022, and we think its early cycle earnings strength is likely to lead to more durable earnings growth and trading multiples as the cycle lengthens," Zekauskas said.
The overweight rating is for Dow's year ahead performance after Dow has survived 2020 recessionary conditions.