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Westlake Chemical (WLK) Up 10% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Westlake Chemical Corporation (WLK - Free Report) . Shares have added about 10% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is WLK due for a pullback? 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 catalysts.

Westlake Chemical Tops Earnings, Sales Estimates in Q1

Westlake Chemical recorded a profit of $287 million or $2.20 per share for first-quarter 2018, marking a roughly two-fold rise from $138 million or $1.06 per share earned a year ago.

The bottom line in the reported quarter was boosted by higher selling prices for key products, increased sales volumes for caustic soda and PVC resin, benefits of lower U.S. corporate tax rate and a gain from redemption of debt.

Barring one-time items, earnings for the reported quarter were $2.24 per share, which beat the Zacks Consensus Estimate of $2.09.

Westlake Chemical posted first-quarter revenues of $2,150 million, up roughly 10.7% year over year. It beat the Zacks Consensus Estimate of $2,101 million.

Sales in the quarter benefited from higher prices for major products and increased sales volumes for caustic soda and PVC resin that more than offset reduced polyethylene sales volume.

Segment Highlights

Sales from the Olefins segment fell roughly 7.4% year over year to $503 million in the quarter. Operating income of the segment decreased 9.4% year over year to $163 million, hurt by reduced polyethylene sales volumes and increased feedstock costs.

The Vinyls segment logged sales of $1,647 million, up roughly 17.6% year over year. Operating income of the segment was $266 million, a nearly four-fold year-over-year increase, driven by higher prices for major products and increased sales volumes for caustic soda and PVC resin.

Financial Position

Westlake Chemical ended the quarter with cash and cash equivalents of roughly $851 million, a more than two-fold rise year over year. Total debt was $3,127 million at the end of the quarter, down 13% year over year.

Cash flow from operations was around $225 million for the quarter, up around 43% year over year.

Outlook

The company noted that demand for products across its segments remains strong due to continued growth in the Americas, Europe and Asia. Moreover, it is benefiting from the investments made last year to improve its operations and reliability.

Westlake Chemical is working diligently on the recently announced expansions in its Vinyls segment. It also remains committed to capture the targeted synergies and cost reductions along with other opportunities that will improve its operations.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. There have been two revisions higher for the current quarter compared to one lower.

Westlake Chemical Corporation Price and Consensus

VGM Scores

At this time, WLK has a nice Growth Score of B, however its Momentum is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 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.

Based on our scores, the stock is primarily suitable for momentum investors while also being suitable for those looking for growth and to a lesser degree value.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise WLK 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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