On Wednesday, Citi upgraded shares of Westlake Chemical (NYSE: NYSE:WLK), shifting the rating from Neutral to Buy. The firm reduced the price target to $140 from the previous $152. Trading at $117.54, the stock sits near its 52-week low of $116.66, following a -21.6% decline over the past six months.
According to InvestingPro analysis, the stock appears fairly valued based on its proprietary Fair Value model. The adjustment follows a period of underperformance in the company's stock, which Citi analysts believe presents a buying opportunity in anticipation of a potential housing market recovery in the second half of 2025 or into 2026.
Westlake Chemical is expected to continue gaining market share, according to the firm's analysis. With a market capitalization of $15.1 billion and an overall Financial Health score of "FAIR" from InvestingPro, the company maintains a solid market position. Despite a less positive outlook on the fundamentals of commodity chemicals, the analyst sees potential for improved sales of polyvinyl chloride (PVC) and modest advancements in the caustic soda market. Additionally, the firm anticipates multi-year improvements for epoxies, bolstered by favorable anti-dumping rulings.
The report also highlights Westlake Chemical's solid financial position, emphasizing the company's strong balance sheet. This financial strength is seen as a key factor that could support consistent returns to shareholders and provide the capacity for potential mergers and acquisitions.
Citi's recommendation suggests that the current dip in Westlake Chemical's share price may offer an attractive entry point for investors. The firm's analysis indicates that the company is well-positioned to benefit from future market dynamics, including a rebound in the housing sector and advantageous regulatory decisions.
In other recent news, Westlake Corporation declared a regular dividend of $0.525 per share for the third quarter of 2024, continuing its long-standing practice of providing returns to shareholders. The company also announced Q3 earnings with net sales of $3.1 billion and net income of $183 million, despite challenges such as operational issues and adverse weather conditions. BMO Capital Markets and RBC Capital Markets adjusted their outlook on Westlake, reducing their price targets while maintaining a Market Perform and Outperform rating respectively.
These developments follow Westlake's Q3 performance, which 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. Despite these setbacks, the company maintains a strong cash position of $2.9 billion and is targeting cost savings of $125 million to $150 million for 2024. Both BMO and RBC Capital expect the company to leverage its strong balance sheet for potential mergers and acquisitions.
Furthermore, Westlake anticipates a decrease in interest rates in 2025, which could stimulate demand in the housing market. 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.
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