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Westlake Upgraded to Strong Buy

Zacks Equity Research

On Jan 15, Zacks Investment Research upgraded specialty chemicals company Westlake Chemical Corp. (NYSE:WLK) to a Zacks Rank #1 (Strong Buy).

Why Upgraded?

Westlake posted strong third-quarter 2013 results on healthy gains from higher pricing and lower feedstock costs, stemming from North American shale gas production. The company’s earnings for the quarter climbed to $2.54 per share from $1.30 per share a year ago, outshining the Zacks Consensus Estimate of $2.21. Profit zoomed roughly 96% year over year to $170.3 million.

Westlake has delivered positive earnings surprises in the last four quarters with an average beat of 20.61%.  The company's long-term estimated earnings per share growth rate is 6%.

Revenues rose roughly 22% year over year to around $1,004 million in the quarter, beating the Zacks Consensus Estimate of $935 million. In the quarter, Westlake benefited from increased sales volumes for styrene and caustic, higher selling prices and contributions from its specialty PVC pipe business (acquired in May 2013).

Westlake also saw higher olefins and vinyls integrated product margins in the third quarter, thanks to higher selling prices for key products. Increased ethylene production at the company’s Lake Charles complex also contributed to olefins margin expansion.

Sales from Westlake’s Olefins segment jumped roughly 26% year over year to $679.3 million in the third quarter. The Vinyls segment recorded sales increase of around 15% year over year to $324.8 million.

Following the release of the third quarter results, the Zacks Consensus Estimate for 2013 for Westlake has gone up 7.3% to $8.65 per share. The Zacks Consensus Estimate for 2014 has also increased 4.4% to $9.47.

Westlake begun operations at its new chlor-alkali plant located at its vinyls manufacturing complex in Geismar, La. on Dec 27. The new plant uses membrane technology and has an annual production capacity of 350,000 electrochemical units (ECU's).

Westlake expects continued cost benefits from North American shale gas production. The company continues to invest to capture this cost advantage. The company is committed to boost shareholder returns through higher dividend payouts. This is evident as Westlake’s Board declared a 20% hike in its quarterly dividend to 22.5 cents per share from the previous payout of 18.75 cents per share in Aug 2013.

Other Stocks to Consider

Other companies in the specialty chemical space with favorable Zacks Rank are Chemtura Corp. (NYSE:CHMT), A. Schulman, Inc. (NASD:SHLM) and PolyOne Corp. (NYSE:POL). All these carry a Zacks Rank #2 (Buy).

Read the Full Research Report on WLK
Read the Full Research Report on POL
Read the Full Research Report on CHMT
Read the Full Research Report on SHLM

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