Westlake Chemical Corp (NYSE:WLK)

CAPS Rating: 5 out of 5

The Company is a vertically integrated manufacturer and marketer of basic chemicals, vinyls, polymers and fabricated products.

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Member Avatar RugbyViking13 (86.16) Submitted: 9/27/2014 11:49:04 PM : Outperform Start Price: $90.23 WLK Score: -7.05

can it keep growing, who knows?

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Member Avatar TMFDeej (99.30) Submitted: 5/4/2014 6:44:26 PM : Outperform Start Price: $70.87 WLK Score: +13.47

I like Westlake's plan to spin off its ethylene production facilities as an MLP.

Jason

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Member Avatar pleonexia4ROE (< 20) Submitted: 3/28/2014 8:41:47 AM : Outperform Start Price: $66.88 WLK Score: +20.28

2**

S&P DOWNGRADES OPINION ON SHARES OF WESTLAKE CHEMICAL TO SELL FROM BUY (WLK $66.32 **) :

- We are raising our '14 EPS estimate by $0.40 to $5.03 and initiating '15's at $5.08, due to raised price expectations.
- However, we are cutting our 12-month target price by $4 to $59 on slower EPS growth expectations.
- We think WLK's strong EPS growth in '12 and '13 will moderate in '14 and '15.

- We believe that natural gas-based ethylene producers will continue to benefit from a feedstock cost advantage over oil-based producers.

- WLK plans to expand ethylene capacity to capitalize on new U.S. natural gas supplies, but we see the expansion affecting volumes over the next few years.

We have lowered our three year EPS growth rate to 6.3% as we believe that the benefit from the low feedstock costs has already been absorbed in 2013 earnings. We have a favorable opinion on WLK's capital spending plans that include increasing ethylene and PVC capacity and performing feedstock conversions, but in the near-term, we expect some supply disruptions.

We see revenues rising 7.2% in 2014 and 3.5% in 2015, following a 5.3% increase in 2013. Revenue early in 2013 was hurt by reduced output due to expansion at several facilities, and we see some improvement in 2014 as some new capacity enters service. This should be augmented by higher prices and greater volume for vinyl and resins due to increased construction activity and a modest acquisition in May 2013.

The Capital IQ consensus gross margin estimate is 31.0% in 2014 and 31.8% in 2015, versus 29.3% in 2013. Capital IQ consensus estimates suggest that EBIT margins will be 27.2% in 2014 and 27.8% in 2015, versus 25.4% in 2013. We expect increased volumes and stabilizing prices as well as continuing low feedstock costs benefiting margins. The consensus estimates for interest expense rise in both 2014 and 2015.

We estimate operating EPS of $5.03 for 2014, up 11% from $4.55 in 2013. Our 2015 EPS estimate is $5.08, up another 1.0%.

WLK recently traded at 13.2X our 2014 EPS estimate, or a small discount to its commodity chemical peers. Our 12-month target price of $59 is 11.7X our estimate, or a 23% discount to its peer target. We believe this valuation is appropriate given our reduced EPS growth outlook, which is slower than its peers.

Risks to our recommendation and target price include volatility in selling prices and raw material costs; material changes in industry production capacity; and changes in production availability.

CORPORATE OVERVIEW.

Westlake Chemical is a vertically integrated manufacturer and marketer of basic chemicals, vinyls, polymers and fabricated building products. Its products include some of the most widely used chemicals in the world, which are fundamental to many diverse consumer and industrial markets, including flexible and rigid packaging, automotive products, coatings, residential and commercial construction as well as other durable and non-durable goods. The company operates in two principal business segments, Olefins and Vinyls, and it is an integrated producer of vinyls with substantial downstream integration into polyvinyl chloride, or PVC, building products.

Westlake benefits from highly integrated production facilities that allow it to process raw materials into higher value-added chemicals and building products. WLK has grown through a series of acquisitions and new capacity additions. As of February 15, 2014, it had 13.6 billion pounds per year of total production capacity at 15 manufacturing sites in North America. Westlake also has a 59% interest in a joint venture in China that operates a vinyls facility. Sales outside the U.S. in 2013 were 9.4%, largely to Canada (5.7%). The Chao family controls 69.8% of outstanding common shares.

The olefins segment (68% of total sales in 2013 and operating profit of $833 million) consists of polyethylene resins (47% of total sales in 2013) and ethylene and styrene monomers (21%) produced at two manufacturing complexes. Polyethylene is the world's most widely consumed plastic used in packaging, films, coatings, and molded products. WLK consumes the majority of the ethylene to produce polyethylene and styrene, as well as vinyl chloride monomer in its vinyls business. Ethylene co-products are sold to others. The company is one of the few North American integrated producers of vinyls (32% of total sales and operating profit of $155 million), consisting of vinyl resins and intermediates (21% of total sales), and fabricated vinyl products (11%). PVC is the world's third most widely used plastic, and it is used in various forms to make wire and cable insulation, automotive trim, packaging, window frames, pipe, and siding.

COMPETITIVE LANDSCAPE.

Olefins and vinyls products are some of the most widely used chemicals in the world and are upgraded into a wide variety of higher value-added chemical products used in many end-markets. Petrochemicals are typically manufactured in large volume by a number of different producers using widely available technologies. The petrochemical industry exhibits cyclical commodity characteristics and margins are influenced by changes in the balance between supply and demand and the resulting operating rates, the level of general economic activity, and the price of raw materials. The cycle is characterized by periods of tight supply, leading to high operating margins, followed by a decline in operating rates and margins primarily as a result of significant capacity additions. Due to the significant size of new plants, capacity additions are built in large increments and typically require several years of demand growth to be absorbed.

The company is a medium-sized manufacturer of most of its commodity products, which are made at four major facilities. We believe that it competes against larger companies in virtually all of its chemicals businesses. WLK is the largest North American producer of low-density polyethylene with an annual capacity of 1.5 billion lbs. and the fifth largest domestic producer of vinyl resin. Low-density polyethylene has the smallest volume and the lowest historical growth rate of the three types of polyethylene. The company is the second biggest producer of PVC pipe by capacity in the United States, and it is also one of the largest producers of vinyl fence components. Competitors in the ethylene, polyethylene and styrene markets are typically some of the world's largest chemical companies, including Chevron Phillips Chemical Company LP, The Dow Chemical Company, ExxonMobil Chemical Company, INEOS (successor to BP Chemicals Ltd.), LyondellBasell Industries and NOVA Chemicals Corporation, a subsidiary of The International Petroleum Investment Company of the Emirate of Abu Dhabi. Competitors in the vinyls market include Formosa Plas- tics Corporation, Axiall Corp. (formerly Georgia Gulf), Oxy Chem, LP, and Shintech, Inc.

FINANCIAL TRENDS.

Over the past 5 years, sales have grown at a compound annual growth rate (CAGR) of 0.4%, with 2013 revenues beating 2008's for the first time since the downturn. Generally, acquisitions have been a significant component of the top-line growth. Capital expenditures were $679 million in 2013, $387 million in 2012, and $177 million in 2011, with the increase driven by plant expansions. Over the past decade, capital expenditures have averaged 193% of depreciation. Dividends increased at a CAGR of 32% over the past 5 years.

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Member Avatar GirlsUnder30 (95.15) Submitted: 12/27/2012 12:25:04 PM : Outperform Start Price: $38.07 WLK Score: +80.08

Excellent chemical product manufacturer which is well placed to expand its businesses and its margins.

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Member Avatar popeye2012 (< 20) Submitted: 11/11/2012 3:36:54 AM : Underperform Start Price: $36.04 WLK Score: -91.03

WLK has a very high short interest (over 20%!)

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Member Avatar TomFoolNC (29.39) Submitted: 5/21/2012 5:19:00 PM : Outperform Start Price: $24.95 WLK Score: +187.61

benefit from low NG prices

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Member Avatar GrowthnValue (< 20) Submitted: 11/11/2011 6:11:32 PM : Outperform Start Price: $20.06 WLK Score: +262.32

long watchlist

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Member Avatar MechanicalBull1 (77.87) Submitted: 2/28/2011 1:38:21 PM : Outperform Start Price: $21.86 WLK Score: +235.40

valueline rank = 1

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Member Avatar josephdefeo (38.08) Submitted: 9/30/2008 10:29:35 AM : Underperform Start Price: $9.16 WLK Score: -738.57

It may move around, but in the end this one sinks/stinks.

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Member Avatar jatava (66.87) Submitted: 8/5/2008 10:50:05 PM : Outperform Start Price: $8.64 WLK Score: +811.73

10.000

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Member Avatar Sebtor (57.82) Submitted: 4/24/2008 2:29:41 PM : Outperform Start Price: $7.61 WLK Score: +954.68

Below book value. Very limited risk. OK earnings history - well worth a try.

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Member Avatar rv6fool (< 20) Submitted: 11/22/2007 2:08:24 PM : Underperform Start Price: $8.46 WLK Score: -846.92

Poor conditions in NA for construction ... regulation of PVC in consumer products will put huge amounts of unused capacity on the market.

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Member Avatar FatCatOnly (< 20) Submitted: 3/28/2007 6:40:42 AM : Outperform Start Price: $12.05 WLK Score: +549.21

price below sector and industry, efficiency and cash above sector and industry.
close to 52wk low.
institution ownership is healthy 40% and increasing

Results 1 - 13 of 13

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