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Westlake Chemical Up 85% in a Year: What's Behind the Rally?

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Shares of Westlake Chemical Corporation (WLK - Free Report) have shot up around 85% over a year. The company has also significantly outperformed its industry’s growth of roughly 47% to over the same time frame.  

Westlake Chemical, a Zacks Rank #1 (Strong Buy) stock, has a market cap of roughly $15.1 billion. Average volume of shares traded in the last three months is around 990.1K. The company has an expected long-term earnings per share growth of 12.2%.

Let’s take a look into the factors that are driving this chemical company.


Driving Factors

Forecast-topping earnings performance, strong outlook and upbeat prospects stemming from the Axiall acquisition have contributed to a rally in Westlake Chemical's shares. Westlake Chemical saw its profits jump roughly two-fold year over year in the first quarter, boosted by higher selling prices for key products, increased sales volumes for caustic soda and PVC (polyvinyl chloride) resin, benefits of lower U.S. corporate tax rate and a gain from redemption of debt. Both adjusted earnings and revenues for the quarter topped the Zacks Consensus Estimate.

Westlake Chemical, in its first-quarter call, 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.

The company is seeing increased global demand for all major products in both Vinyls and Olefins segments, providing a boost to its top line. Favorable demand trends for all of its major products including polyethylene, PVC resin and caustic soda is expected to continue moving ahead.

Westlake Chemical is also gaining from contributions of Axiall acquisition and higher selling prices for major products. The Axiall acquisition has diversified the company’s product portfolio and geographical operations, creating a North American leader in Olefins and Vinyls. The company expects to realize $250 million of cost reduction synergies related to the acquisition in 2018.

Moreover, Westlake Chemical is working diligently on the recently announced expansions in its Vinyls segment. This additional production capacity will help the company to address the growing needs of its global customers.

Annual estimates for Westlake Chemical have also moved north over the past two months, reflecting analysts’ confidence on the stock. Over this period, the Zacks Consensus Estimate for 2018 has increased by around 6.8% to $8.57 per share. The Zacks Consensus Estimate for 2019 has also moved up roughly 7.1% over the same timeframe to $8.95.

The Zacks Consensus Estimate for earnings for 2018 reflects an expected year-over-year growth of around 56.7%. Moreover, earnings are expected to register a roughly 4.5% growth in 2019.

Other Stocks to Consider

Other top-ranked stocks in the basic materials space worth considering include The Chemours Company (CC - Free Report) , FMC Corporation (FMC - Free Report) and Celanese Corporation (CE - Free Report) , each carrying a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chemours has an expected long-term earnings growth rate of 15.5%. Its shares have gained roughly 19% over a year.

FMC has an expected long-term earnings growth rate of 14.3%. The company’s shares have gained around 17% in a year.

Celanese has an expected long-term earnings growth rate of 8.3%. Its shares have rallied roughly 33% over a year.

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