Westlake Chemical Corporation (WLK) manufactures and supplies petrochemicals, polymers, and building products worldwide. It operates through two segments, Performance and Essential Materials; and Housing and Infrastructure Products.
On August 17, 2022, WLK was upgraded by JPMorgan Chase & Co. analysts from “neutral” to “overweight.” Moreover, Wall Street analysts expect the stock to hit $123.92 in the near term, indicating a potential upside of 25.6%.
On August 12, 2022, WLK announced a $500 million expansion of its existing Share Repurchase Program and declared a regular dividend of $0.36/ share for the second quarter of 2022, up 20% from the prior quarter. WLK’s $1.43 annual dividend yields 1.45% at the current share price. WLK’s dividend payouts have grown at a 9.8% CAGR over the past five years.
On August 2, 2022, Albert Chao, President, and CEO, said, “We believe we will continue to benefit from the high integration within our operations as North American producer’s structural cost advantage has expanded with higher global energy costs when compared with our competitors in Europe and Asia.”
WLK has gained marginally in the past month and year-to-date to close the last trading session at $98.63. Moreover, it has gained 12.9% over the past year.
Here is what could shape WLK’s performance in the near term:
Solid Financials
WLK’s net sales for the second quarter ended June 30, 2022, came in at $4.48 billion, up 56.8% year-over-year. Its gross profit came in at $1.45 billion, up 65.7% year-over-year. Also, its income from operations came in at $1.18 billion, up 63.2% year-over-year.
Furthermore, its net income came in at $858 million, up 64.4% year-over-year, while the EPS came in at $6.60, up 63.4% year-over-year. Moreover, the company’s EBITDA came in at $1.46 billion, up 56.2% year-over-year.
Attractive Valuations
WLK’s forward EV/S of 1.06x is 22.9% lower than the industry average of 1.37x. Moreover, its forward P/S of 0.78x is 26.4% lower than the industry average of 1.06x. Its forward EV/EBITDA of 3.53x is 41.6% lower than the industry average of 6.05x. Also, its forward Price/Cash Flow of 3.71x is 44.8% lower than the industry average of 6.72x.
Robust Profitability Margins
WLK’s trailing-12-month gross profit margin of 32.08% is 3% higher than the industry average of 31.16%. Its trailing-12-month EBIT and EBITDA margins of 26.51% and 32.52% compare with the industry averages of 14.31% and 20.91%, respectively. Also, its trailing-12-month net income margin of 18.97% is 108.6% higher than the industry average of 9.10%.
In addition, its trailing-twelve-month ROCE, ROTC, and ROTA of 35.24%, 18.75%, and 14.06%, compare with the industry averages of 13.87%, 7.60%, and 5.50%, respectively.
POWR Ratings Reflect Promising Outlook
WLK has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Value and Quality, consistent with its lower-than-industry valuation multiples and higher-than-industry profitability margins.
The stock has a C grade for Stability, in sync with its 24-month beta of 0.92.
In the 89-stock Chemicals industry, WLK is ranked #21. The industry is rated A.
Click here for the additional POWR Ratings for WLK (Growth, Momentum, and Sentiment).
View all the top stocks in the Chemicals industry here.
Bottom Line
WLK has demonstrated steady growth over the last quarter, and analysts are bullish on the company’s prospects. Its revenue is expected to increase 39.6% year-over-year to $16.45 billion in 2022. Moreover, its EPS is estimated to grow 31.9% per annum for the next five years. So, in line with JPMorgan analysts, I believe WLK could be an ideal addition to one’s portfolio.
How Does Westlake Chemical Corporation (WLK) Stack Up Against its Peers?
While WLK has an overall POWR Rating of B, one might consider looking at its industry peers, Sisecam Resources LP (SIRE), Valhi, Inc. (VHI), and Kronos Worldwide, Inc. (KRO), which have an overall A (Strong Buy) rating.
WLK shares were unchanged in premarket trading Thursday. Year-to-date, WLK has gained 2.39%, versus a -16.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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