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Westlake (WLK) Down 11.5% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Westlake Chemical (WLK - Free Report) . Shares have lost about 11.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Westlake due for a breakout? 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’s Earnings & Sales Top Estimates in Q3

Westlake Chemical recorded a profit of $308 million or $2.35 a share for third-quarter 2018, up from $211 million or $1.61 earned a year ago. Earnings beat the Zacks Consensus Estimate of $2.24.

Third-quarter net income increased on higher sales prices for caustic soda, increased sales volume of caustic soda, PVC resin and polyethylene, lower purchased ethylene cost, benefits from U.S. corporate tax rate cuts and repayment of debt.

Westlake Chemical posted third-quarter revenues of $2,255 million, up 6.9% year over year. It beat the Zacks Consensus Estimate of $2,235 million.

Sales in the quarter benefited from higher sales prices for caustic soda and increased sales volumes for caustic soda, PVC resin and polyethylene.

Segment Highlights

Sales at the Olefins segment increased 7.8% year over year to $541 million in the quarter. Operating income at the segment fell 2.4% year over year to $162 million due to lower margin from increased feedstock costs, partly offset by higher sales volumes for polyethylene and higher styrene sales prices compared to last year.
 
The Vinyls segment recorded sales of $1,714 million, up 6.7% year over year. Operating income at the segment was $251 million, up 17.2% year over year. The upside was driven by higher sales prices and volumes for caustic soda, higher sales volumes for PVC resin and reduced purchased ethylene costs.
 
Financial Position

Westlake Chemical ended the quarter with cash and cash equivalents of $788 million, up 16.2% year over year. Total long-term debt was $2,667 million at the end of the quarter, down 20.3% year over year.

Cash flow from operations was around $606 million in the quarter, up around 25.7% year over year.

Outlook

The company noted strong global demand for products across its Olefins and Vinyls segments. Westlake Chemical also expects its investments initiatives to allow it to achieve cash flow and earnings growth.

How Have Estimates Been Moving Since Then?

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

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 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 broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Westlake has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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