5 Potentially Overvalued Dow Stocks Trading Above Their Fair Value Targets

May 24, 2016 by Jon C. Ogg

Should investors be concerned that five of the Dow Jones Industrial Average are trading above their fair value targets? While some investors want to avoid worrying about Wall Street research reports on their individual stocks, the reality is that analyst calls can make a big difference on how investors treat a stock’s longer-term prospects.

It is important to consider this: Do investors want to buy overvalued stocks or stocks that many analysts and investors think have a lot of upside? That is of course a loaded question, but it is worth asking.

It turns out that as of May 24, 2016, there are five Dow stocks that are trading above the consensus analyst price target from Thomson/First Call. Some analysts of course have higher price targets, but when you average out all the targets, the mean price is below the current share price.

There are some common qualities among these potentially overvalued Dow stocks. While some are down handily from former highs, they generally are outperforming the broader market so far in 2016.

Some of these potentially overvalued Dow stocks have seen their shares get battered from their former glory days, or they have real business challenges right now. They generally are suffering from a contraction in earnings, and they are either suffering from ongoing slow growth or outright negative trends in revenues.

Here are five Dow stocks trading above their consensus fair value estimates tracked on Wall Street. 24/7 Wall St. has included the other side of the coin with more positive targets and ratings or additional color and trading history has been added for relevance.


International Business Machines Corp. (NYSE: IBM) has engineered earnings per share numbers for many years, and now its earnings and revenue trends are not favorable. The company just cannot get its Watson and other new initiatives to grow fast enough to offset the bleeding in its core IT-services business. Even Warren Buffett as the largest holder hasn’t swayed the public, and IBM is no longer so focused on demonstrating its backlog or orders.

IBM is worth some $141 billion now. Shares trade at $148.24 and its consensus analyst price target is $144.01. Still, the stock was up almost 8% and ranked as the seventh best-performing Dow stock so far in 2016. Its 52-week range is $116.90 to $173.78, and its highest analyst price target remains up at $168, but this was much higher two and three years ago. Wells Fargo recently light talked up its restructuring and the most negative analyst target remains quite firmly against the company. IBM’s dividend yield is close to 3.8%.


If you only followed Caterpillar Inc. (NYSE: CAT) sales trends, you might think it was heading to deeper and deeper problems. Investors actually have driven shares up 6% so far in 2016, on hopes that the woes in China, Brazil, Russia and other growth markets finally might at least see a light at the end of the tunnel. Still, Caterpillar is valued at almost 20 times forward earnings, and its market cap is $41 billion.

Trading at $71.11, Caterpillar has a consensus analyst price target of $68.29. Its 52-week trading range is $56.36 to $88.82. Argus issued a much more positive research note in late April, with a $92 price target. Caterpillar’s dividend yield is almost 4.4%.

Caterpillar CEO Doug Oberhelman said with the last earnings report:

While first-quarter results were about as we expected, sales and profit were well below the first quarter of 2015.  Sales declined across the company with substantial reductions in construction, oil and gas, mining and rail.  While many of the industries we serve are challenged, we remain focused on what we can control: the quality of our products, our market position, safety in our facilities and continued restructuring and cost reduction.  In fact, our period costs and variable manufacturing costs in the quarter were nearly $500 million lower than the first quarter of 2015.


Wal-Mart Stores Inc. (NYSE: WMT) is the world’s largest retailer, and it has a $216 billion market cap. Its shares are still well off of highs, but the gain has been 15% so far in 2016. Wal-Mart is also valued at almost 16 times forward earnings.

Wal-Mart has current share price near $70.27 but a consensus analyst price target of $68.12. Its highest analyst price target is actually all the way up at $81.00, and the 52-week range is $56.30 to $75.83. Investors should keep in mind that Wal-Mart shares briefly went above $90 to an all-time high in January of 2015. Its dividend yield is almost 2.9% now. Earlier in 2016, Walmart’s CFO Brett Biggs described its dividend hike as follows:

We’ve had a long history of returns to shareholders, and we’re pleased to continue building on that by raising our annual dividend for the 43rd consecutive year. We are proud of our performance, strong balance sheet and consistent cash flow that enables us to generate significant returns to shareholders while investing for the future to improve our stores, innovate through new initiatives and strengthen digital relationships with our customers.

Exxon Mobil

It may not be a shock to see Exxon Mobil Corp. (NYSE: XOM) on the list of Dow stocks trading above their consensus price targets, but the difference here is that it is because shares have risen so much off of their lows. Year to date, Exxon Mobil shares are actually up 17%, making it the best performing off all 30 Dow stocks in that time.

Exxon Mobil shares even hit a new 52-week high of $90.40 on Tuesday and have retreated to about $89.99. The consensus target price is $85.02, and the market cap is $373 billion. Keep in mind that Exxon shares were very briefly north of $100 in 2014. Argus is still much more bullish than just about every analyst report, with a $104 price target. Exxon Mobil’s dividend yield is close to 3.4%.

Exxon Mobil is now easily within the companies raising dividends for 25 years or more and it remains in the 10 stocks to own for the decade.

Below is how Exxon Mobil described the dividend hike when it raised the payout to $0.75 from $0.73 in April:

This second quarter dividend compares with 73 cents per share paid in the first quarter of 2016… Through its dividends, the corporation has shared its success with its shareholders for more than 100 years and has increased its annual dividend payment to shareholders for 34 consecutive years.


Most investors may not even know that Travelers Companies Inc. (NYSE: TRV) is Dow stock, or may have forgotten that it is, but its $113.10 share price is above the $112.65 consensus price target. That might not seem very overvalued, but most financial stocks currently trade far below their consensus analyst targets. Travelers also has a $32.7 billion market cap. Its valuation is about 11 times expected earnings, and shares down by 0.75% year to date.

Travelers did warn that its results might be impacted through catastrophic losses. The company’s earnings in April, along with news of a dividend hike, said:

Our results from time to time will be impacted by higher levels of catastrophe losses, as they were this quarter, but the strength of our franchises, our meaningful and sustainable competitive advantages and our relentless execution have enabled us to deliver industry-leading returns over time, and we are well positioned to continue to do so.

Travelers trades near $113.10, in a 52-week range of $95.21 to $118.28. The highest price target is $123.00. The dividend yield is 2.4%, which is still pretty good compared to many large-cap financial stocks.

Investors need to consider that individual analyst calls can prove to be quite volatile. After all, analysts often have no better knowledge than sophisticated investors, and they often have to rely on what the companies are telling them. Still, you would hope that when you average out all their targets and estimates that maybe they might be close to the mark.