Westlake Chemical (WLK) analysts have been significantly raising estimates over the past 3 months. However, shares took a dive on the recent earnings surprise.
Is this a good opportunity to scoop up this Zacks #1 Rank (Strong Buy) on the dip?
Company Description
Westlake makes specialty chemicals in 15 different facilities across North America and China. Their products go into numerous everyday materials. From window frames and pipes to plastic wrap in the kitchen and tires in the driveway.
Earnings Surge
On May 3 Westlake reported $83.5 million in income for the first quarter. That is up from just $17.6 million a year ago. Earnings per share worked out to $1.25, crushing the Zacks Consensus Estimate by 27 cents for the company’s fourth consecutive earnings surprise.
Sales were up $89 million, to $867 million, driven by a combination of higher volumes and price increases.
Estimates on the Rise
After the earnings results came out analysts quickly raised earnings estimates. Full-year projections for 2011 are averaging $4.25, up 76 cents on the news and up $1.61 in the past 3 months. Forecasts for next year are coming in at $4.34, up 42 cents recently and $1.99 since mid-February.
Westlake reported $3.34 per share in net income last year, which puts the expected growth rates at 27% and 2%, respectively. Over the next 3 to 5 year analysts are expecting 7% annualized growth.
Valuations & Comparisons
Shares of WLK are trading at roughly 14.5 times this year’s estimates, which is in line with the S&P 500. Chemicals are such a hot area right now though, ranking 35th out of 265 industries.
Westlake is the number 1 plastics company and stacks up well against its peers. Their net profit margin of 8.8% is well ahead of the industry norm, 5.6%. WLK’s ROE is 500 bps better than the average, at 19.6%.
The Chart
Given the results, you might not think shares of Westlake would take a hit on the earnings news, but they did. However, given the sizable jump in estimates, this looks like a good time to buy on the dip for some added value.
Read the March 3rd Feature Here
Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Small Cap Trader service
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