Westlake Chemical Corporation - Value

Westlake Chemical Corporation (WLK) blew by the Zacks Consensus Estimate by 44% in the third quarter as earnings per share doubled compared to a year ago. Sales prices and volumes were both jumping as the chemical sector remains hot.

Westlake is at the center of the industrial economy as its products are the building blocks for many regular household items from tires to the plastic wrap on your food. It has 15 petrochemical and plastic facilities in North America and China.

All Major Products Saw Sales Increases in Q3

On Nov 3, Westlake reported its third quarter earnings and the good times continued to roll. Earnings per share were 95 cents, easily beating the Zacks Consensus by 29 cents. It was the second big earnings beat in a row.

Sales rose 23.3% to $779.6 million from $632.6 million in the third quarter of 2009 as sales prices rose on all the company's major products and sales volumes climbed on everything except caustic and PVC pipe.

The olefins segment was especially hot as income from operations jumped to a record $136.1 million from $74.4 million a year ago.

The increase was attributed to higher prices, higher polyethylene sales volume and relatively flat ethane costs.

The vinyls segment, however, continued to struggle as it is tied in with the weak construction industry. It saw a loss in the quarter. Until construction improves, vinyls will likely continue to underperform.

Zacks Consensus Estimates Jump

How big has the turnaround been since 2009? Analysts already expect earnings growth of 224% in 2010.

The 2010 Zacks Consensus Estimate climbed again in the last 7 days to $2.59 from $2.21 per share on the earnings beat.

Estimates are rising for 2011 as well, but analysts appear more cautious as they expect an earnings decline of 6%.

WLK Has Attractive Valuations

This Zacks #1 Rank (strong buy) is right on the edge of value stock territory. Shares have recently surged on the earnings report.

But its forward P/E is holding at about 14.5, in line with its peers, and within the value parameters I use which is under 15x.

Its price-to-book ratio is within the value parameters at 1.8 and it has a solid value price-to-sales ratio of 0.8.

Westlake also rewards shareholders with a dividend currently yielding 0.7%.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

 
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