On Monday (NASDAQ:MNDY), RBC Capital Markets adjusted its outlook on shares of Westlake Chemical Corporation (NYSE: NYSE:WLK), reducing the price target from $170.00 to $167.00 while maintaining an Outperform rating.
The revision follows the company's third-quarter performance, which was affected by approximately $120 million in outage and weather-related impacts. Despite these challenges, Westlake Chemical's operations have resumed, and the company anticipates certain headwinds in the fourth quarter.
The anticipated headwinds for the fourth quarter include seasonal effects, which are expected to result in a 15% decrease, along with a drop in polyethylene (PE) prices by 5 cents per pound and polyvinyl chloride (PVC) prices by 2 cents per pound. Moreover, the company foresees an increase in natural gas costs by around 60 cents. These factors are projected to affect the company's short-term performance.
However, RBC Capital sees positive aspects for Westlake Chemical, including the stabilization of Polyethylene Methanol (PEM) volumes, which are expected to rise by 5.6% year-over-year in the fourth quarter. Furthermore, anticipated rate cuts are believed to potentially bolster demand in 2025.
In light of these factors, RBC Capital has revised its EBITDA estimates for Westlake Chemical, lowering the fourth-quarter 2024, full-year 2024, and full-year 2025 forecasts to $450 million, $2.32 billion, and $2.65 billion, respectively, from previous estimates of $500 million, $2.44 billion, and $2.80 billion.
The new stock price target of $167.00 is based on an 8.5 times multiple of the estimated 2025 EBITDA, an increase from the prior multiple of 8.0 times. This adjustment reflects the firm's expectation that PEM earnings are currently at a low point. Despite the near-term headwinds, RBC Capital's Outperform rating indicates a positive outlook on Westlake Chemical's stock over a longer-term horizon.
In other recent news, Westlake Corporation reported its Q3 2024 results amid significant challenges. The company's net sales were $3.1 billion, and net income reached $183 million, or $1.41 per share.
This was impacted by a $75 million after-tax expense for mothballing two European epoxy units and $120 million in losses due to extended maintenance outages. However, the Housing and Infrastructure Products (HIP) segment performed well, contributing to the company's optimism about future demand in the housing market.
Despite these challenges, Westlake Corporation maintains a strong cash position of $2.9 billion and is targeting cost savings of $125 million to $150 million for 2024. The company expects HIP revenue between $4.3 billion to $4.6 billion for the full year and capital expenditures around $1 billion. The company also anticipates a decrease in interest rates in 2025, which could stimulate demand in the housing market.
Westlake Corporation's third-quarter performance demonstrates the resilience of its business model amid operational challenges. The company's strategic focus on cost savings and its robust position across the PVC value chain are expected to help it navigate the current market environment and capitalize on anticipated demand growth in the housing sector.
These are recent developments and are subject to change as the company continues to navigate its industry landscape.
InvestingPro Insights
Recent data from InvestingPro provides additional context to RBC Capital's analysis of Westlake Chemical Corporation (NYSE: WLK). The company's market capitalization stands at $17.01 billion, with a P/E ratio (adjusted) of 42.39 for the last twelve months as of Q3 2024. This valuation metric aligns with the analyst's outlook, suggesting that investors are pricing in future growth potential despite current challenges.
Westlake's revenue for the last twelve months as of Q3 2024 was $12.12 billion, with a revenue growth of -6.88% over the same period. This decline in revenue supports RBC Capital's concerns about near-term headwinds, including the anticipated seasonal effects and price drops in key products.
InvestingPro Tips highlight that Westlake has raised its dividend for 19 consecutive years, demonstrating a commitment to shareholder returns even in challenging times. Additionally, the company's stock price is near its 52-week high, trading at 81.25% of that peak, which could indicate investor confidence in the company's ability to navigate current market conditions.
These insights, along with 16 additional tips available on InvestingPro, provide a more comprehensive view of Westlake Chemical's financial position and market performance, complementing the analyst's perspective on the company's future prospects.
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