Can Westlake Chemical Continue to Create Investor Wealth?
Westlake Chemical’s stock performance
Westlake Chemical (WLK) has been a strong performer so far in 2017 and good at creating wealth for its investors. This year, as of December 5, 2017, WLK has risen a staggering 75.8%. It has significantly outperformed the broad-based SPDR S&P 500 ETF (SPY), which has risen 17.7% in the same period. WLK has also outperformed its peers Eastman Chemical (EMN), Huntsman (HUN), and LyondellBasell (LYB), which have risen 21.3%, 61.2%, and 21.9%, respectively, for the same period.
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The strong performance of the stock is driven by better-than-expected earnings in the first three quarters of 2017, led by the continued integration of the Axiall acquisition. The global demand for PVC (polyvinyl chloride) is expected to grow at a CAGR (compound annual growth rate) of 3.2% in the next four years. WLK is gearing up to meet the growing demand and has completed the 100-million-pound ethylene expansion at its Calvert facility. WLK also intends to add more ethylene capacity through joint ventures by 2019. At the end of November, WLK raised notes carrying lower coupon rates, which the company says it will use to redeem ~$1.1 billion outstanding notes with higher coupon rates. That’s expected to lower its interest expense going forward and improve its earnings.
Westlake Chemical’s moving average and RSI
With WLK stock gaining significantly, the stock is trading 62.8% higher than the 100-day moving average of $60.46, indicating an upward trend in the stock. However, the stock has a relative strength index of 88, suggesting that WLK has moved into an overbought territory temporarily. Investors could become cautious, anticipating a possible selling pressure.