Bernstein: Westlake 'One Of The Best' Plays On Chinese Pollution Crackdown

Petrochemical producer Westlake Chemical Corporation WLK has multiple tailwinds ahead that could generate upside potential of 40 percent for investors, according to Bernstein.

The Analyst

Bernstein's Jonas Oxgaard initiated coverage of Westlake with an Outperform rating and $150 price target.

The Thesis

Westlake stands to benefit from its exposure to the ethylene value chains, which continue to show "prolonged strength" and should transform into a supercycle around 2020, Oxgaard said in the initiation note.

Westlake benefits from the current oversupply in U.S. ethylene to the tune of around $250 million per year as prices fall to cash cost, the analyst said. 

The company has exposure to the chlor-alkali chain, which is benefiting from China's pollution crackdown, Oxgaard said.

China's ambitions to address environmental issues could prove to be the "most impactful" event in the chemical industry since the advent of shale gas, the analyst said, adding that Westlake is "one of the best ways" to gain exposure. 

The interests of Westlake's controlling familyy are aligned with shareholder interests, according to Bernstein.

The Chao family owns 71 percent of all outstanding shares, which makes CEO Albert Chao "highly incentivized" to perform well and generate strong returns, Oxgaard said. Westlake's management team is among the best in the industry, and investors have given the company the benefit of the doubt for any capital projects or future acquistions, he said.  

Price Action

Westlake Chemical shares were trading lower by 0.61 percent at the time of publication Thursday.

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