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Westlake (WLK) Up 9.2% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Westlake Chemical (WLK - Free Report) . Shares have added about 9.2% in that time frame, outperforming the S&P 500.

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

Westlake Chemical’s Q2 Earnings and Sales Surpass Estimates

Westlake Chemical logged record profits of $522 million or $4.04 per share in the second quarter of 2021, skyrocketing from a profit of $15 million or 11 cents per share in the year-ago quarter. Earnings per share topped the Zacks Consensus Estimate of $3.80.

Sales rose 67.3% year over year to $2,859 million from $1,709 million in the year-ago quarter. The top line also outpaced the Zacks Consensus Estimate of $2,467.2 million.

The company benefited from a global economic rebound, increased sales prices and margins for most of its key products, especially PVC resin, and strength in demand in building and construction materials business in the quarter.

Segment Highlights

Sales in the Vinyls segment went up 62.3% year over year to $2,188 million in the reported quarter. Operating income in the segment was $435 million, shooting up from $20 million a year ago.  The upside was led by higher sales prices, margins and volumes for PVC resin, and strong earnings in the building and construction materials business. The increase in sales prices for PVC resin was driven by robust demand in North American residential construction and the repair and remodeling markets.

The Olefins segment generated sales of $671 million, increasing 85.9% year over year. Operating income in the segment was $277 million, shooting up from $25 million in the year-ago quarter. The upside was mainly due to higher sales prices and margins for all products, driven by strong global demand, partly offset by lower sales volumes for polyethylene.

Financial Position

Westlake Chemical ended the quarter with cash and cash equivalents of $1,844 million, increasing 67.3% year over year. Long-term debt was $3,555 million, down 5.1%.

Cash flow from operations was $617 million in the quarter, marking a 37.7% year-over-year increase.

Outlook

The company noted that it will continue with its business investments going forward. It expects that the recently announced acquisitions of Boral North America and LASCO Fittings, totaling around $2.4 billion, will initiate a stage of development and growth for the company. The company is optimistic about the strengthening of the housing, repair and remodeling markets and aims to leverage the growth opportunities arising from the acquisitions.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 8.47% due to these changes.

VGM Scores

At this time, Westlake has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Westlake has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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