On Wednesday, RBC Capital Markets adjusted its financial outlook for Westlake Chemical Corporation, reducing the price target to $96 from the prior $122, while retaining an Outperform rating on the stock. The revision follows Westlake’s lower-than-anticipated earnings in the first quarter, influenced by approximately $80 million in outages at Petro-1/Geismar, elevated costs for purchased ethylene, and increased natural gas prices. According to InvestingPro data, the stock is currently trading at $78.47, near its 52-week low of $77.23, suggesting potential value opportunity based on InvestingPro’s Fair Value analysis.
The analyst at RBC Capital noted that Westlake’s Polyethylene (PEM) segment faced significant earnings challenges in the first quarter. Despite this, there is an expectation for a moderate recovery in the second quarter due to reduced outages, along with higher PVC and Caustic prices. However, earnings forecasts have been revised downward from previous estimates. With a market capitalization of $10.07 billion and an overall Financial Health score of “FAIR” from InvestingPro, the company maintains solid fundamentals, including a healthy current ratio of 2.64 and manageable debt-to-equity ratio of 0.44.
Westlake’s integrated PEM/High-Intensity Polyethylene (HIP) operations are anticipated to sustain earnings above historical minimums, providing some resilience to the company’s financial performance. RBC Capital has updated its EBITDA projections for the second quarter, fiscal year 2025, and fiscal year 2026 to $425 million, $1.68 billion, and $2.20 billion, respectively, down from earlier estimates of $619 million, $2.275 billion, and $2.62 billion.
The price target has been set based on an 8.0 times multiple of the forecasted FY25 EBITDA, an increase from the previous 7.5 times multiple. This adjustment reflects the significant near-term earnings pressure the company is facing. The analyst’s commentary underscores the expectation that while earnings may be lower than initially projected, the company’s strong integration should help maintain profitability above the historical lows.
In other recent news, Westlake Chemical reported a net loss of $40 million, or $0.31 per share, for the first quarter of 2025, with net sales totaling $2.8 billion and EBITDA at $288 million. The company faced a significant year-over-year net income decrease of $214 million, attributed to higher North American feedstock and energy costs, planned turnarounds, and unplanned outages. BMO Capital Markets adjusted its price target for Westlake Chemical from $125.00 to $103.00, maintaining a Market Perform rating, following these first-quarter results. Challenges in the Performance Engineered Materials (PEM) segment and weak results in the Housing and Infrastructure Products (HIP) segment contributed to this outlook. Despite a robust cash position of $2.5 billion, Westlake Chemical is focusing on cost reduction and optimizing its manufacturing footprint to mitigate these challenges. The company anticipates positive sales volume growth in the HIP segment for 2025 but expects revenue and EBITDA margins to be at the lower end of previous guidance. Analysts from BMO Capital Markets expressed caution, noting the impact of tariffs and a weakening housing market on Westlake’s performance.