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Ascendere Associates LLC

August 2, 2011 Westlake Chemical (WLK) -- Decline on Industry Peak Fears Premature
NYSE:WLK
Stock Price Market Cap Enterprise Val Beta $47.51 $3.2b $3.2b 1.68 LTM EPS: $ 4.67 P/E: P/CF P/S: 10.2 5.0 0.9 FY+1 EPS: P/E: P/CF P/S: $4.42 10.7 5.0 0.9 FY+2 EPS: P/E: P/CF P/S: $4.48 10.6 LTM ROE: 20.5% 38.8% 15.4% 9.2% Insiders Own 0.6%

EBITDA/ Capital EBIT 4.9 Margin NI 0.8 Margin

Number of Analysts 10 Debt to Captial 31.4% Dividend Yield 0.5%

Source: Capital IQ consensus and financial data.

Overview Westlake Chemical (WLK) was the worst-performing stock in our long model portfolio today, down -9.8%, despite reporting a 2Q11 quarter in line with consensus accompanied by an impressive surge in ROIC to 24.6% from 17.9% in the previous quarter and 10.3% last year. The general volatility in the global economy as well as industry-specific price and volume volatility is what seems to be sending the price of WLK shares down. However, despite a challenging industry environment the company has delivered impressive returns on invested capital, and in our opinion there is still a chance for ROIC upside relative to current levels and relative to implied consensus forecasts later in the year. In addition, we think investors may be overly negative on expectations for volumes and pricing later in the year. As a result, we believe WLK as an investment deserves the benefit of the doubt until proven otherwise. As it relates to our model portfolio strategies, we intend to hold it the stock and reassess the relative attractiveness of the position at the end of the month -- as we do with all of our stock positions.

J. Stephen Castellano steve@ascenderellc.com

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Ascendere Associates LLC www.ascenderellc.com

Details: Westlake Chemical (WLK) was the worst-performing stock in our long model portfolio today, down -9.8%, despite reporting a 2Q11 quarter in line with consensus accompanied by an impressive surge in ROIC to 24.6% from 17.9% in the previous quarter and 10.3% last year. The decline in the stock seems to reflect concerns that volume and price conditions have peaked for the company even while it is planning to embark on a significant capital spending program that will fully integrate its polyethylene production to natural-gas based feedstock. Sellers of the stock seem to be focusing on the margin compression relative to 1Q11, recent price declines, fears of slowing export volumes and cynicism regarding near-term industry price increases and expectations for lower feedstock stocks later in the year, while ignoring the most important metric -- the impressive surge in its profitability relative to its operating capital. Consensus forecasts currently imply that ROIC is set to peak in 3Q11 and decline next September to about 20%, which we estimate is nearly 2x its cost of capital. However, if industry price increases stick, feedstock prices and oil prices stabilize or drift higher again, we think there is a reasonable chance of further ROIC expansion beyond 3Q11. In other words, we think management has done an excellent job in navigating a challenging environment and, until proven otherwise or until there is a relatively compelling better idea, it should be given the benefit of the doubt. We do not see today's report changes the relative attractiveness of the stock at the current moment. We believe this is especially so given that the only selling at 1x sales and 11x earnings, as well as the flexibility that the $837m in unrestricted and restricted cash provides it versus its $765m debt. In more detail, we note that on the conference call management stated that current market conditions, expect further decline of polyethylene prices in July, however inventory adjustments and other factors that led to the decline in prices have now run their course, and industry has announced price increases for August and September due to higher domestic and global demand and higher domestic ethylene prices Based on the conference call, today's sell-off seems driven in part by negative bias related to management comments on a $0.04/lb giveback of an early-June $0.06/lb price increase in polyethylene prices caused by inventory destocking and lower industry exports and rising ethane feedstock prices. The volatility in prices may be causing some cynicism on$0.02/lb and $0.03/lb industry increases planned for August and September. The cynicism may not be baseless, but in our opinion it is not actionable as a sell signal. This is because managements' strong track record of delivering solid results in challenging environments in our opinion provides it with some leeway. We also think a short-term focus on near-term industry price swings may be clouding the importance of its long-term advantage in having access to shale-based natural-gas feedstock, which seems likely to be continue to be more cost competitive than oil-based naphtha feedstock for some time. Despite the increasing negative bias seen in the price of the shares, we do not see earnings estimates decline much due to language of planned price increases in August and September. Instead, we would expect any cautious analysts to downgrade the stock while maintaining estimates. If we are right, this will have little impact to our relative analyst revision rankings for the company. In summary, the general volatility in the global economy as well as industry-specific price and volume volatility is what seems to be sending the price of WLK shares down today. However, despite all of this the company has delivered impressive returns on invested capital, and in our opinion there is still a chance for ROIC upside relative to current levels. As a result, we believe WLK as an investment deserves the benefit of the doubt until proven otherwise. As it relates to J. Stephen Castellano steve@ascenderellc.com Ascendere Associates LLC www.ascenderellc.com

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our model portfolio strategies, we intend to hold it the stock and reassess the relative attractiveness of the position at the end of the month -- as we do with all of our stock positions.

Westlake Chemical Corp.


WLK Materials Commodity Chemicals

500 2000

499 1999

498 1998

497 1997

496 1996

500 6/30/2011 Gross Revenue High Low EBIT High Low EPS quarter High Low Shares Outsanding Diluted Shares Outsanding
Source: consensus estimates via Capital IQ

# Estimates Forecast 8 $ 924 $ $ 960 $ 871 7 $ $ $ 9 $ $ $ 138 $ 159 117 1.19 $ 1.41 1.00 67

Actual Variance 925 $ 1 $ (35) $ 54 138 $ $ $ 1.21 $ $ $ 67 110 0 (21) 21 0.02 (0.20) 0.21 -

LTM Margin

15.4%

Source: Capital IQ data and estimates, and Ascendere Associates data and estimates.

Margins Revenue growth Gross margin SG&A & Other margin R&D margin EBITDA margin Depreciation margin EBIT margin (or EBT) Income (excluding exceptions)

9/29/12 3.8% 19.3% 6.2% 0.0% 16.7% 3.6% 13.1% 7.7%

6/29/12 6.0% 20.2% 6.2% 0.0% 17.4% 3.6% 14.0% 8.3%

3/30/12 8.3% 18.9% 6.2% 0.0% 16.2% 3.6% 12.7% 7.4%

12/31/11 9.1% 19.2% 6.2% 0.0% 16.8% 3.6% 12.2% 7.0%

9/30/11 18.1% 19.5% 6.2% 0.0% 16.9% 3.7% 13.2% 7.7%

Trend 1 (2) (3) (1) (1) (2) (2)

6/30/11 13.0% 18.1% 6.2% 0.0% 18.5% 3.5% 15.0% 8.6%

3/31/11 11.4% 19.3% 6.2% 0.0% 20.0% 3.8% 16.2% 9.3%

12/31/10 26.2% 20.3% 6.9% 0.0% 19.0% 2.2% 16.8% 9.9%

9/30/10 23.3% 17.3% 7.1% 0.0% 17.9% 4.1% 13.8% 7.8%

6/30/10 42.4% 15.4% 6.5% 0.0% 16.1% 3.9% 12.2% 6.9%

J. Stephen Castellano steve@ascenderellc.com

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Ascendere Associates LLC www.ascenderellc.com

Westlake Chemical Corp. Price


WLK Materials Commodity Chemicals NTM EPS NTM PE R/R

47.51 4.23 11.23 5.4 to 1

Price / Earnings (NTM) vs. Stock Price


40.0 $70

35.0

$60

30.0
$50 25.0

P / E

$40 20.0 $30 15.0 $20

P r i c e

10.0

5.0

$10

0.0

$-

O-07

O-08

O-09

O-10

O-01

O-02

O-03

O-04

O-05

O-06

A-02

A-03

A-04

A-05

A-06

A-07

A-08

A-09

A-10

A-11

J-01

J-05

J-06

J-07

J-08

P/E

Average

+1 St. Dev.

-1 St. Dev.

Stock Price

Max up to ten years 09/26/04 Max PE Average PE Min PE to 37.3 13.5 5.9 07/10/11 11/08/09 05/15/05

Three years 07/13/08 Max PE Average PE Min PE to 37.3 19.0 11.1 07/10/11 11/08/09 10/26/08

One year 07/11/10 Max PE Average PE Min PE to 19.0 15.6 11.3 07/10/11 09/19/10 06/19/11

One year historically implied target range NTM EPS Max EPS $ 4.91 Average EPS $ 4.23 Min EPS $ 3.44 Target $ $ 93 $ 66 $ 39 47.51 97% 39% -18%

Source: Capital IQ consensus estimates, Ascendere Associates models.

J. Stephen Castellano steve@ascenderellc.com

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Ascendere Associates LLC www.ascenderellc.com

J-11

J-02

J-02

J-03

J-03

J-04

J-04

J-05

J-06

J-07

J-08

J-09

J-09

J-10

J-10

J-11

Ticker: Company: WLK

WLK Westlake Chemical Corp. 12/31/2006 12/31/2007 12/31/2008 12/31/2009 12/31/2010 Average High Low Close Average High Low Close Average High Low Close Average High Low Close 0.8x 0.9x 0.6x 0.7x 4.3x 4.8x 3.6x 4.0x 5.1x 5.7x 4.2x 4.7x 8.4x 10.4x 6.9x 10.1x 0.7x 0.9x 0.4x 0.4x 5.5x 6.7x 4.0x 5.1x 7.7x 9.6x 4.7x 7.9x 11.6x 14.4x 9.9x 12.5x 0.4x 0.5x 0.4x 0.5x 6.5x 7.9x 4.3x 7.4x 11.5x 15.3x 6.7x 15.3x 15.0x 40.9x 9.7x 40.9x 0.7x 1.0x 0.4x 0.9x 10.1x 16.4x 5.9x 8.3x 35.5x 249.7x 11.3x 17.3x 47.5x 136.8x 23.7x 29.9x 0.7x 1.0x 0.5x 1.0x 6.6x 8.4x 5.4x 6.9x 11.0x 17.6x 8.1x 9.4x 19.1x 30.5x 12.2x 14.7x 8/2/2011 1.0x 1.3x 0.8x 1.0x 6.5x 8.3x 5.1x 5.7x 8.6x 10.9x 6.6x 7.5x 14.3x 18.6x 11.3x 12.4x Last 5 years 0.7x 1.3x 0.4x 1.0x 7.1x 16.4x 3.6x 5.7x 15.2x 249.7x 4.2x 7.5x 19.4x 136.8x 6.9x 12.4x

TEV / NTM Total Revenue

TEV / NTM EBITDA

TEV / NTM EBIT

Price / NTM EPS

Source: Capital IQ

J. Stephen Castellano steve@ascenderellc.com

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Ascendere Associates LLC www.ascenderellc.com

08/02/11

Westlake Chemical Corp.


Materials Commodity Chemicals

NYSE:WLK

$48.97

$0.25 / 0.5%

Stock price Shares outstanding


Market value

48.97 67
3,506

EPS CY +1 estimate CY +2 estimate

EPS

PE

PEG

$ $

4.42 4.48

11.1 10.9

1.6 1.6 6.8 7.0%

BPVM Adjusted = (15.8+9.6)/(2.8+1.0)


Next 5yr EPS growth estimate

Cash & equivalents Total debt Preferred equity Minority interest Other
Enterprise Value

712 765 76
3,693

Debt / Capital Debt / Op Capital Debt / EV EV / Op Capital

34.5% 37.1% 22.8% 162.9%

NYSE:WLK Next year estimate Next quarter estimate Latest Year ago 9 qtr avg Growth Next yr, y/y estimate Next Q, y/y estimate Latest Q, y/y Last yr, y/y Lastest Q vs 9Q avg BPVM Ratio

EBIT/ Cap 18.6% 23.0% 23.7% 11.0% 13.1%

EBITDA/ Cap 24.0% 28.1% 28.9% 17.2% 18.6%

ROIC 20.6% 24.8% 24.6% 10.3% 9.3%

NYSE:WLK Revenue growth Gross margin SG&A & Other margin EBITDA margin EBIT margin (or EBT) Recurring Earnings

Next 5 Qtrs LTM (5) 1 3 (5) (5) (4) (5) (5) (2) (5) 1 (31)

LTM Trend (2) 8 (1) 11 8 8 2 2 (1) 8 5 48

Qtr Trend* 1 (2) (3) (1) (2) (2)

-19.1% 67.1% 116.0% 130.5% 80.3%

-14.5% 41.3% 68.4% 60.4% 56.0%

-17.0% 90.5% 137.7% -294.5% 164.8%

NOPLAT
EP

Free Cash Flow


LTM EBITDA/Capital ROIC Total Percent of total possible

6.8

(9)

Source: Capital IQ data and estimates, Ascendere Associates data and estimates.

-56%

34%

-12%

Implied by Consensus Average

Westlake Chemical Corp. Estimate


NYSE:WLK NOPLAT Economic Charge Economic Profit Sequential growth NOPLAT Operating Capital Sequential growth # EBIT Forecasts 9/29/12 500 268 232 0% 500 2,529 -2%

Estimate 6/29/12 497 263 233 -3% 497 2,487 20.9% -2%

Estimate 3/30/12 498 258 239 -10% 498 2,439 21.4% -7%

Estimate 12/31/11 519 252 267 -11% 519 2,380 22.9% -7%

Estimate 9/30/11 548 246 302 3% 548 2,325 24.8% 1% 6/30/11 534 240 294 106% 534 2,267 24.6% 37% 3/31/11 386 243 143 143% 386 2,233 17.9% 35% 12/31/10 280 221 59 -7% 280 2,107 13.3% 2% 9/30/10 273 210 63 942% 273 2,134 13.0% 26% 6/30/10 216 209 6 -108% 216 2,127 10.3% 40%

ROIC (NOPLAT / Operating Capital) 20.6%

EBIAT Trailing 12 months Depreciation Capital Spending, recurring Adjstd Working Capital Investment Free cash flow to the entity

426 133 (329) (8) 222

423 132 (318) (35) 203

442 131 (275) (75) 222

451 131 (222) (155) 205

465 116 (169) (198) 214

466 115 (119) (122) 340

427 114 (95) (73) 373

348 114 (81) (87) 293

267 113 (86) (68) 226

198 112 (80) (156) 74

Source: Capital IQ data and estimates, Ascendere Associates data and estimates.

J. Stephen Castellano steve@ascenderellc.com

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Ascendere Associates LLC www.ascenderellc.com

DISCLOSURES Ascendere is in the business of providing equity research and related consulting services to investors and their advisors. The equity research it provides includes basic quantitative model portfolios and more detailed fundamental research with respect to individual stocks. In addition, the firm manages stock portfolios for itself and clients. Ascendere currently sources financial data from Capital IQ. Ascendere does not rate stocks on any scale, but does offer individual stock commentary and valuation opinions. With regard to Ascendere's portfolio strategies, "long" or "high-quality" baskets should generally be considered buys, unless otherwise noted. Stocks in our "short" or "lowquality" baskets should generally be considered sells, unless otherwise noted. While exceptions may occasionally occur, typically stocks in the highquality basket are expected to outperform the S&P 500 over a month's time and stocks in the low-quality basket are expected to underperform. A more relevant benchmark would comprise of all stocks and ADRs that trade on major U.S. stock exchanges with a market cap above $2 billion. Ascendere adheres to professional standards and abides by codes of ethics that put the interests of clients ahead of its own. The following are specific disclosures made by Ascendere: 1) Ascendere may have a financial interest in the companies referred to in this report ("the Companies"). The research analyst covering the Companies and members of the analyst's immediate family have a financial interest in one or more of the Companies. 2) Ascendere generates revenue from research subscription revenue and portfolio management fees. At any given time it may be long or short any of the Companies. 3) Ascendere does not make a market in the securities of any of the Companies. 4) Ascendere has not received compensation from the Companies. 5) Ascendere has not managed or co-managed a public offering for any of the Companies. 6) Neither Ascendere nor any of its officers or any family member of the covering analyst serve as an officer, director or advisory board member of any of the Companies. 7) Neither Ascendere nor any of its officers or any family member of the covering analyst beneficially own 1% or more of any class of securities of any of the Companies.

DISCLAIMERS This report is intended for informational purposes only and does not constitute a recommendation, or an offer, to buy or sell any securities or related financial instruments. The report is not intended to be in furtherance of the specific investment objectives, financial situation, or particular needs of any individual recipient. Investment decisions should be based on an individual's own goals, time horizon and tolerance for risk. The information contained herein accurately reflects the opinion of Ascendere at the time the report was released. The opinions of Ascendere are subject to change at any time without notice and without obligation or notification. The officers, affiliates or family members of Ascendere Associates may hold positions in the securities of the Companies. No warranty is made as to the accuracy of the information contained herein. The views and opinions expressed in the market commentary reflect the opinions of the author and may be based upon information obtained from third-party sources believed to be reliable but not guaranteed. These opinions are subject to change at any time based upon market or other conditions. Ascendere disclaims any responsibility to update such views. This information is intended for the sole use of clients of Ascendere. Any other use, distribution or reproduction is strictly prohibited. Investing in stocks includes a high degree of risk, including the risk of total loss. This is for informational purposes only and is not intended to constitute a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. All information, opinions and estimates are current as of original distribution by author and are subject to change at any time without notice. Any companies, securities and/or markets referenced are solely for illustrative purposes. Past performance is not indicative of future performance, and no representation or warranty, express or implied, is made regarding future performance. This report may contain This report may contain forward-looking statements, which involve inherent risks and uncertainties, and we might not be able to achieve the predictions, forecasts, projections and other outcomes we may describe or imply. A number of important factors could cause results to differ materially from the plans, objectives, expectations, estimates and intentions we express in these forward-looking statements. We do not intend to update these forward-looking statements. For Investment Professional use only. NOT FOR FURTHER DISTRIBUTION. No part of this document may be reproduced in any way without the prior written consent of Ascendere Associates LLC.

J. Stephen Castellano steve@ascenderellc.com

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Ascendere Associates LLC www.ascenderellc.com

DISCLOSURES Ascendere is in the business of providing equity research and related consulting services to investors and their advisors. The equity research it provides includes basic quantitative model portfolios and more detailed fundamental research with respect to individual stocks. In addition, the firm manages stock portfolios for itself and clients. Ascendere currently sources financial data from Capital IQ. Ascendere does not rate stocks on any scale, but does offer individual stock commentary and valuation opinions. With regard to Ascendere's portfolio strategies, "long" or "high-quality" baskets should generally be considered buys, unless otherwise noted. Stocks in our "short" or "low-quality" baskets should generally be considered sells, unless otherwise noted. While exceptions may occasionally occur, typically stocks in the high-quality basket are expected to outperform the S&P 500 over a month's time and stocks in the low-quality basket are expected to underperform. A more relevant benchmark would comprise of all stocks and ADRs that trade on major U.S. stock exchanges with a market cap above $2 billion. Ascendere adheres to professional standards and abides by codes of ethics that put the interests of clients ahead of its own. The following are specific disclosures made by Ascendere: 1) Ascendere may have a financial interest in the companies referred to in this report ("the Companies"). The research analyst covering the Companies and members of the analyst's immediate family have a financial interest in one or more of the Companies. 2) Ascendere generates revenue from research subscription revenue and portfolio management fees. At any given time it may be long or short any of the Companies. 3) Ascendere does not make a market in the securities of any of the Companies. 4) Ascendere has not received compensation from the Companies. 5) Ascendere has not managed or co-managed a public offering for any of the Companies. 6) Neither Ascendere nor any of its officers or any family member of the covering analyst serve as an officer, director or advisory board member of any of the Companies. 7) Neither Ascendere nor any of its officers or any family member of the covering analyst beneficially own 1% or more of any class of securities of any of the Companies. 8) The covering analyst certifies that this report accurately reflects such analyst's personal views.

J. Stephen Castellano steve@ascenderellc.com

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Ascendere Associates LLC www.ascenderellc.com

DISCLAIMERS This report is intended for informational purposes only and does not constitute a recommendation, or an offer, to buy or sell any securities or related financial instruments. The report is not intended to be in furtherance of the specific investment objectives, financial situation, or particular needs of any individual recipient. The information contained herein accurately reflects the opinion of Ascendere at the time the report was released. The opinions of Ascendere are subject to change at any time without notice and without obligation or notification. The officers, affiliates or family members of Ascendere Associates may hold positions in the securities of the Companies. No warranty is made as to the accuracy of the information contained herein. This information is intended for the sole use of clients of Ascendere. Any other use, distribution or reproduction is strictly prohibited. Investing in stocks includes a high degree of risk, including the risk of total loss. For additional information on risks, disclosures, disclaimers and frequently asked questions, please see the back of any monthly report or visit our website at www.ascenderellc.com.

J. Stephen Castellano steve@ascenderellc.com

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Ascendere Associates LLC www.ascenderellc.com

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