Analyst Turns Bearish On Dow, LyondellBasell And Westlake; Recession Level Margins, Earnings In Q4

There is likely to be “continued downside” to polyethylene prices in the U.S., with an estimated decline of 10 cents per pound in the third quarter and 5 cents per pound in the fourth quarter, according to KeyBanc Capital Markets.

The Petrochemical Analyst: Aleksey Yefremov downgraded the ratings for Dow Inc DOW, LyondellBasell Industries NV LYB and Westlake Corp WLK from Sector Weight to Underweight, while keeping the price targets unchanged at $45, $73 and $90, respectively.

The Petrochemical Thesis: Following Dow’s announcement of a 15% reduction polyethylene production by this week, LyondellBasell and Westlake “are likely to follow suit,” Yefremov said in the downgrade note.

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“WLK is also idling its styrene plant in the U.S. due to market conditions,” the analyst wrote. He added that polyvinyl chloride prices could also decline.

“All of this is before potential power shortages in Europe this winter,” Yefremov stated. “We see short-term risk/reward for names with meaningful commodity and European exposure skewed to the downside,” he added.

The analyst further mentioned that margins and earnings could approach recession levels in the fourth quarter of 2022.

DOW, LYB, WLK Price Action: Shares of Dow were down by 1.71% at $53.52, LyondellBasell's stock was lower by 1.59% at $85.49, and Westlake shares were 3.51% lower at $103.22 at the time of publication on Monday.