On Sep 13, Zacks Investment Research upgraded specialty chemicals company Westlake Chemical Corp. (WLK) to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
Westlake delivered impressive second-quarter 2013 results on Jul 30. The company has delivered positive earnings surprises in the last 4 quarters with an average beat of 18.51%.
Westlake reported second-quarter earnings of $2.17 per share, up roughly 26% from 1.72 per share in the year-ago quarter, exceeding the Zacks Consensus Estimate of $1.95. Earnings were aided by lower cost natural-gas based ethylene production stemming from North American shale gas and oil production.
During the second quarter, Westlake closed its acquisition of CertainTeed Corporation’s Pipe and Foundation Group (PFG) for about $175 million in cash. The acquisition is a strategic fit for Westlake as it enhances the company's North American Pipe and building products portfolio by adding specialty product lines and supporting technology.
In August, Westlake also announced a 20% hike in its quarterly dividend. The dividend has now increased to 22.5 cents per share from the previous payout of 18.75 cents that was paid in the second quarter of 2013.
Westlake has a flexible capital structure which offers it with a number of options as it considers growth prospects and new investment opportunities, both internally and externally. The company expects capital expenditures to remain between $500 million to $550 million in 2013.
Westlake’s capital investments includes the Lake Charles ethylene expansion that was completed in the first quarter of 2013, the construction of its Geismar chlor-alkali plant that is scheduled to be completed in the fourth quarter of 2013, and the long lead items related to its Calvert City ethylene plant feedstock conversion and expansion project that will be completed in 2014. This flexibility allows Westlake to maintain its conservative approach to growth and pursue projects that bring value to its shareholders.
The Zacks Consensus Estimate for 2013 for Westlake has gone up 8.4% to $8.00 per share as all estimates were revised higher over the last 60 days. The Zacks Consensus Estimate for 2014 has also risen by 8.8% to $8.93 over the same period due to upward revisions.
Other Stocks to Consider
Other companies in the basic materials sector that are worth considering include Ferro Corp. (FOE), Minerals Technologies Inc. (MTX) and Polyone Corp. (POL). All of them carry a Zacks Rank #2 (Buy).
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