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Westlake (WLK) Up 16.9% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Westlake Chemical (WLK - Free Report) . Shares have added about 16.9% 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 catalysts.

Westlake's Earnings & Revenues Top Estimates in Q4

Westlake logged a profit of $644 million or $4.98 per share in the fourth quarter of 2021, rising from $113 million or 87 cents per share in the year-ago quarter. The bottom line topped the Zacks Consensus Estimate of $4.62 per share.

Sales climbed around 78% year over year to $3,507 million in the quarter. It also outpaced the Zacks Consensus Estimate of $3,027.5 million. The top line was boosted by higher sales prices and margins across most of the company’s businesses.

Westlake benefited from the continued strength in the residential construction market, which along with strong repair and remodeling markets, led to strong demand and pricing PVC resin and higher demand in its Housing and Infrastructure Products business. The company’s Performance and Essential Materials business also witnessed strength in polyethylene for packaging and consumer markets.

Segment Highlights

Sales in the Performance and Essential Materials segment went up around 72% year over year to $2,460 million in the reported quarter. Operating income in the segment was $821 million, shooting up from $143 million a year ago.  The upside was led by higher prices for products in the segment on the back of strong demand.

The Housing and Infrastructure Products segment generated sales of $1,047 million, increasing around 97% year over year. Operating income in the segment was $86 million, up from $65 million a year ago. The upside was mainly due to strong housing and remodeling activity that led to healthy demand and increased prices for all products in the segment.

FY21 Results

Earnings for full-year 2021 were $15.58 per share compared with $2.56 per share a year ago. Revenues rose roughly 57% year-over-year to $11.8 billion for the full year.

Financial Position

Westlake ended the year with cash and cash equivalents of $1,908 million, up around 45% year over year. Long-term debt was $4,911 million, up around 38%.

Cash flow from operations was $2,394 million in 2021, up roughly 85% year over year.

Outlook

The company said that market conditions remain favorable in 2022. It is well-placed to continue to provide value to customers and investors leveraging its market leading position in Performance and Essential Materials including PVC, polyethylene, epoxy, chlorine and caustic soda. The outlook is also positive for Housing and Infrastructure Products with strong market indicators in 2022, Westlake noted.

Westlake has developed a larger platform for growth with the Housing and Building Products acquisitions in 2021 and the epoxy acquisition in early 2022, which is expected to drive value through its integrated chain. It sees these businesses to significantly contribute to earnings this year.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

The consensus estimate has shifted 17.16% due to these changes.

VGM Scores

Currently, Westlake has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 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

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise 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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