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Westlake Chemical’s Valuation: Still Better Than Peers

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Dec. 4 2020, Updated 10:42 a.m. ET

Westlake Chemical’s one-year forward PE multiple

As of December 4, 2017, Westlake Chemical’s (WLK) one-year forward PE (price-to-earnings) multiple is 15.10x. Peers Eastman Chemical (EMN) and LyondellBasell (LYB) are trading at one-year forward PE multiples of 11.30x and 11.0x, respectively.

A forward PE multiple is one of the valuation methods that factor in future earnings. It helps investors compare two or more companies operating in the same industry and assess which company is undervalued and which one is overvalued.

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Westlake continues to trade at a premium

Westlake Chemical has been trading at a premium compared to its peers for more than a year. It reported strong earnings growth in the first three quarters of 2017, and the trend is expected to continue in 4Q17. Analysts are expecting Westlake’s fiscal 2018 earnings per share to be $6.11, which implies a rise of 17.3% over the expected earnings per share for fiscal 2017. The earnings growth is estimated by factoring in the organic growth, driven by the Axiall acquisition and supported by the expansion of the OpCo facility in Calvert City, Kentucky, which added 100 million pounds of ethylene capacity. Westlake has also raised its notes and will use the funds to redeem the notes that have higher coupon rates. That could help WLK reduce its interest expense and improve its earnings.

Analysts expect LyondellBasell’s fiscal 2018 earnings to be 6.6% lower than its expected fiscal 2017 earnings. Eastman Chemical’s fiscal 2018 earnings per share are expected to rise 15.6%. Since WLK has higher growth than its peers, it’s currently commanding a premium over the others.

Investors can hold Westlake Chemical indirectly by investing in the First Trust Materials AlphaDEX ETF (FXZ), which has invested 2.4% of its portfolio in Westlake Chemical. The fund’s other holdings include Cabot (CBT) with a weight of 3.1% as of December 5, 2017.

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