On Thursday, RBC Capital Markets adjusted its price target for Westlake Chemical (NYSE:WLK) stock, reducing it to $147.00 from the previous $167.00, yet the firm retained its Outperform rating on the shares. The revision follows a review of the company’s financial outlook, with RBC Capital noting weaker than anticipated performance in the fourth quarter for polyethylene (PE) and additional seasonal impacts.
The firm also cited a subdued demand growth forecast for the fiscal year 2025. Currently trading at $117.41, the stock sits within a broader analyst target range of $130-$175. According to InvestingPro analysis, Westlake maintains a GOOD financial health score, though the stock appears slightly overvalued at current levels.
RBC Capital’s analysis led to a downward adjustment in Westlake Chemical’s EBITDA estimates for the fourth quarter, the first quarter, and the full fiscal year 2025. The new estimates stand at $440 million for the fourth quarter, $500 million for the first quarter, and $2.50 billion for the fiscal year, scaled back from the previous forecasts of $450 million, $577 million, and $2.65 billion, respectively.
For context, Westlake’s last twelve months EBITDA stands at $1.815 billion, with the company maintaining an EV/EBITDA multiple of 9.41x. Investors can access detailed valuation metrics and more than 30 key financial indicators through InvestingPro’s comprehensive research reports.
The lowered price target reflects a valuation multiple of 8 times, a decrease from the earlier 8.5 times. The analysts pointed out that fewer rate cuts contributed to the revised valuation. Additionally, the chemical industry is facing challenges such as lower automotive production forecasts in the fiscal year 2025, which the firm expects will continue to be a significant challenge for the company.
The report also highlighted the current market conditions for chlorovinyls, which are experiencing sluggish demand growth post-COVID in Asia and consumer pressure in North America. Increased costs for ethane, natural gas, and other raw materials are expected to pose further challenges for Westlake Chemical. Despite these headwinds, RBC Capital suggests that a potential recovery in the building and construction (B&C) sector in 2025, driven by lower rates, could stimulate demand for the segment.
Moreover, stable demand for PE in North America, supported by export markets, offers some positive outlook for the company. The report also mentions the situation in the epoxy market, where China accounts for half of the global demand. The weakness in this market post-COVID has led to an excess supply being exported to Europe, although recent preliminary duties of approximately 40% imposed by the European Union could impact this dynamic. With over 85% of Westlake Chemical’s production based in North America, any stimulus in China that reignites domestic demand could turn these factors into tailwinds for the company. Investors should note that Westlake’s next earnings report is scheduled for February 25, 2025.
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In other recent news, Westlake Chemical has been the subject of several analytical adjustments. UBS upgraded Westlake Chemical’s stock from Neutral to Buy, citing a positive outlook on the company’s earnings and valuation. At the same time, Piper Sandler reduced their price target for the company to $135, maintaining an Overweight rating based on anticipated changes in cyclical earnings.
In addition, Citi upgraded Westlake Chemical from Neutral to Buy, noting the firm’s strong balance sheet. Similarly, BMO Capital Markets and RBC Capital Markets adjusted their price targets for Westlake Chemical, suggesting the company’s potential for leveraging its strong balance sheet for potential mergers and acquisitions.
Westlake Chemical recently reported Q3 earnings with net sales of $3.1 billion and net income of $183 million, even amid operational challenges and adverse weather conditions. The company also declared a regular dividend of $0.525 per share for the third quarter of 2024, demonstrating its commitment to providing returns to shareholders.
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