On Friday, Citi raised the price target for Westlake Chemical (NYSE:WLK) shares to $168, up from the previous target of $162, while keeping a Neutral rating on the stock. The adjustment follows Westlake Chemical's indication of a potential increase in EBITDA margins for the fiscal year 2024.
The company has guided toward the higher end of its 20-22% EBITDA margin forecast, based on a sales midpoint of approximately $4.45 billion, which would imply an EBITDA of around $980 million for the segment.
Westlake Chemical reported that its Housing, Infrastructure & Pipe (HIP) backlog order volume has remained strong across most product categories at the beginning of the second quarter of 2024.
This robust order volume positions the company towards the upper end of the sales and margin guidance. Although current consensus estimates are just below $1 billion, there is an expectation of potential upside.
Despite the strong orders and positive outlook from builders, Westlake Chemical's management has based its projections on the assumption of minimal Federal Reserve rate cuts within the year. Citi has made approximately a 3% upward revision to the company's fiscal year 2024 HIP sales forecasts while maintaining EBITDA margins above the guidance level.
The revised price target of $168 reflects an increase of $6 from the previous target. This change is supported by anticipated better growth in the HIP segment, leading to higher estimates for 2025 and slightly increased valuation multiples, with an estimated P/E ratio of around 17 and an EV/EBITDA multiple of approximately 8.25 times.
In other recent news, Westlake Chemical has been displaying robust financial performance. Piper Sandler, after analyzing the company's latest quarterly earnings and guidance, raised the stock price target for Westlake Chemical to $180 from the previous $160. Despite a slower-than-expected recovery in the product margins for PVC and epoxy, the firm remains confident in Westlake's potential for growth.
Westlake Chemical's first quarter of 2024 earnings release showed net sales of $3 billion, EBITDA at $546 million, and net income of $174 million. The Housing and Infrastructure Products (HIP) segment had a strong showing with a 14% increase in sales volume year-over-year. On the other hand, the Performance and Essential Materials (PEM) segment reported lower net sales and margins but showed improvement from the previous quarter.
These are recent developments that highlight the company's financial health. The company expects improved pricing trends and sales volume growth in the second quarter. Additionally, Westlake Chemical has filed petitions to address low-priced Asian imports, aiming to bolster competitiveness. The company anticipates 2024 revenue for the HIP segment to be between $4 billion and $4.4 billion with an EBITDA margin of around 20%.
InvestingPro Insights
In light of Citi's updated price target for Westlake Chemical, real-time data from InvestingPro further illuminates the company's financial landscape. Westlake's Market Cap stands at a robust $19.7 billion, signaling a significant presence in the industry. Despite a contraction in revenue growth over the last twelve months as of Q1 2024, with a decrease of 19.39%, the company maintains a Gross Profit Margin of 15.56%, suggesting a degree of resilience in profitability. Additionally, the Price to Book ratio in the same period is 1.91, which may appeal to value-oriented investors seeking assets that are reasonably priced relative to their book value.
InvestingPro Tips recommend a critical analysis of the PEG Ratio, which currently stands at -0.89, typically indicating that the stock may be undervalued relative to its earnings growth. Furthermore, with a Dividend Growth of 40.06% in the last twelve months as of Q1 2024, income-focused investors might find Westlake's stock an attractive addition to their portfolios. For those interested in diving deeper, InvestingPro offers additional tips, and by using the promo code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 12 more InvestingPro Tips available that could provide further insights into Westlake Chemical's investment potential.
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