On Tuesday, BMO Capital adjusted its outlook on shares of Westlake Chemical (NYSE: NYSE:WLK), increasing the price target to $171 from the previous $167. The firm maintained a Market Perform rating on the stock. The adjustment follows Westlake Chemical's strong performance in the second quarter, which was marked by the company's ability to improve margins.
The analyst from BMO Capital highlighted that Westlake Chemical's Home Improvement Products (HIP) division is gaining market share, which is anticipated to benefit from the projected housing recovery in the second half of 2025 and 2026. These gains, coupled with revenue synergies and efficiencies, are expected to position the company favorably for future growth.
In the Performance Materials and Engineering (PEM) segment, the analyst noted that immediate-term trends appear robust. However, there is some concern that market expectations for 2025 might be overly optimistic. The firm suggests that a reassessment of consensus numbers in the PEM segment may be prudent.
Despite expressing some reservations, the analyst acknowledged that Westlake Chemical appears to be moderately undervalued at present. BMO Capital is looking for either a downward adjustment in the consensus estimates for the PEM segment or a more attractive entry point into the stock before changing its rating.
The maintained Market Perform rating indicates that while the analyst sees potential in Westlake Chemical, they advise caution and suggest monitoring the stock for a more favorable opportunity to invest. The new price target of $171 reflects the analyst's revised expectations based on the company's recent performance and market position.
In other recent news, Westlake Corporation has announced significant changes to its executive compensation structure, with adjustments particularly affecting Albert Chao, who transitioned from President and CEO to Executive Chairman of the Board. Chao's annual base salary has been revised to $1,019,000, with a target bonus under the company's Annual Incentive Plan for 2024 set at 105% of his new base salary.
In terms of financial performance, Westlake Corporation reported a record-breaking Q2 in 2024, with impressive earnings growth driven by its Housing and Infrastructure Products (HIP) segment. The company posted net sales of $3.2 billion and a net income of $313 million, or $2.40 per share.
These robust results were attributed to higher volumes in pipe fittings and sidings within the HIP segment, as well as increased volumes in PVC resin and caustic soda in the Performance and Essential Materials (PEM) segment.
Furthermore, Westlake achieved cost savings of $85 million in the first half of the year and announced plans to mothball its ECH unit in the Netherlands to enhance profitability in its European epoxy business. The company projects its 2024 revenue in the HIP segment to range from $4.3 billion to $4.6 billion, with a target EBITDA margin of 22%.
Anticipated total capital expenditures are approximately $1 billion, with a goal to achieve cost savings of $125 million to $150 million in 2024. The company's effective tax rate for 2024 is expected to be around 23%, with cash interest expense estimated at $160 million. These are the latest developments within Westlake Corporation.
InvestingPro Insights
In light of BMO Capital's updated outlook on Westlake Chemical (NYSE: WLK), real-time data from InvestingPro provides additional context to their performance and valuation. Westlake Chemical's current market capitalization stands at $18.51 billion, reflecting the scale of the business amidst industry dynamics.
The company's P/E ratio, a key indicator of valuation, is reported at 67.24 but adjusts to a more moderate 30.85 when considering the last twelve months as of Q2 2024. This suggests that while the current valuation may seem high, the adjusted earnings figures provide a different perspective on the stock's value.
Furthermore, the company's price/book ratio as of the last twelve months ending in Q2 2024 is 1.73, indicating that the stock may be reasonably valued in terms of its net assets. This aligns with BMO Capital's assessment of Westlake Chemical being moderately undervalued. The dividend yield as of 2024 stands at 1.4%, complemented by a substantial dividend growth of 40.06% in the last twelve months as of Q2 2024, which could be attractive to income-focused investors.
InvestingPro Tips highlight that Westlake Chemical's revenue has seen a decline of 12.55% in the last twelve months as of Q2 2024, which may warrant attention from investors. Moreover, there are 28 more InvestingPro Tips available for those interested in a deeper analysis, which can provide further insights on whether the current market performance aligns with the company's fundamentals and the industry outlook.
Overall, the InvestingPro data supports BMO Capital's perspective on the company's valuation and future growth potential, while also providing additional metrics for investors to consider. The InvestingPro Fair Value estimate of $133.45 USD offers a conservative counterpoint to analyst targets, suggesting that investors may wish to exercise due diligence and monitor the stock closely.
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