Westlake Chemical Setting Realistic Guidance Will Boost Investor Confidence, BMO Says

Westlake Chemical Corporation’s WLK management on Monday provided annual guidance for the first time in the company’s history.

Although there are heightened concerns around the polyethylene pricing outlook, pressure on export margins across product chains and a challenging macro outlook, management has planned “a realistic runway for 2019 earnings” and the guidance appears achievable, according to BMO Capital Markets.

The Analyst

BMO’s John McNulty maintained a Market Perform rating on Westlake Chemical with a price target of $75.

See Also: Westlake Chemical Adjusts 2019 Guidance

The Thesis

Westlake Chemical announced second-quarter EBITDA and EPS guidance at $340 million-$363 million and 73 cents-87 cents, respectively. For 2019, management guided to EBITDA and EPS of $1.4 billion-$1.6 billion and $3.10-$4.28, both of which significantly missed BMO’s and the Street’s expectations, McNulty said.

While the company has been facing pricing pressure in the second quarter, the shortfall in earnings is likely to have been a result of continued weakness in export margins and soft volumes. McNulty said turnaround costs and possibly minor buyback activity may have some impact on the quarter’s performance.

Westlake Chemical’s full-year guidance implies a decline in polyethylene pricing from the current levels. The analyst noted the ongoing tariff issues may continue to exert pressure on export margins.

The analyst said there may be an upward movement in ethane/ethylene prices, once new plants come online in the back half of the year, and this will further pressurize margins.

Price Action

Shares of Westlake Chemical declined more than 4.3% to $66.93 Tuesday afternoon.