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Why Is Westlake (WLK) Down 2.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Westlake Chemical (WLK). Shares have lost about 2.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Westlake due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Westlake Chemical’s Q4 Earnings and Sales Surpass Estimates

Westlake Chemical posted profits of $113 million or 87 cents per share in the fourth quarter of 2020, up from a profit of $72 million or 56 cents per share in the year-ago quarter. Earnings per share topped the Zacks Consensus Estimate of 68 cents.

Sales rose around 4% year over year to $1,965 million. The figure also surpassed the Zacks Consensus Estimate of $1,884 million.

The company benefited from increased sales prices and margins for polyethylene and PVC resin and strong demand in downstream building products business in the quarter. These were partly offset by lost production and sales volumes, higher maintenance expense and other costs due to reduced production at its Lake Charles facilities from two hurricanes, increased ethylene and fuel costs, and reduced prices for caustic soda.

Segment Highlights

Sales in the Vinyls segment went up around 7% year over year to $1,590 million in the reported quarter. Operating income in the segment was $166 million, up around 144% year over year.  The results were driven by higher sales and margins for PVC resin and increased earnings in the downstream building products business.

The Olefins segment generated sales of $375 million, down roughly 6% year over year. Operating income in the segment dropped 55% to $22 million. The downside was mainly due to lower sales volumes and lost production as a result of the hurricanes.

FY20 Results

Earnings (as reported) for full-year 2020 were $2.56 per share, down from earnings of $3.25 per share a year ago. Revenues dropped roughly 8% year over year to $7,504 million for the full year.

Financial Position

Westlake Chemical ended 2020 with cash and cash equivalents of $1,313 million, up 80% year over year. Long-term debt was $3,566 million, up around 4% year over year.

Cash flow from operations was $1,297 million for 2020, essentially flat year over year.

Outlook

Westlake Chemical stated that it expects the strength in global demand in polyethylene and PVC along with the increase in housing starts and new building permits to continue this year. The company remains focused on operating its facilities safely and efficiently. It is also making disciplined investments, developing new products, lowering costs and leveraging its current products and footprint globally.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month. The consensus estimate has shifted 19.56% due to these changes.

VGM Scores

At this time, Westlake has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Westlake has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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