Is Westlake Chemical (WLK) Poised to Beat on Q1 Earnings?

Westlake Chemical WLK is set to release its first-quarter 2017 results before the market opens on May 2.

Westlake Chemical’s adjusted earnings came in at 87 cents per share in the fourth quarter of 2016, beating the Zacks Consensus Estimate of 75 cents.

Westlake Chemical reported revenues of $1,735.2 million for the quarter, up around 76% year over year. Sales in the quarter benefited from the contribution of Axiall acquisition. However, revenues missed the Zacks Consensus Estimate of $1,776 million.

The company beat the Zacks Consensus Estimate in three of the trailing four quarters while missing in the other one, delivering an average positive surprise of 11.14%. Let’s take a look at how things are shaping up for the forthcoming announcement.

Earnings Whispers

Our proven model shows that Westlake Chemical is likely to beat the Zacks Consensus Estimate this quarter, because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP for Westlake Chemical is currently pegged at +1.25%. This is because both the Most Accurate estimate is 81 cents and the Zacks Consensus Estimate is 80 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Westlake Chemical currently carries a Zacks Rank #3, which when combined with a positive ESP, make us reasonably confident of an earnings beat.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors to Consider

Westlake Chemical’s acquisition of Axiall is expected to provide annual cost synergies of roughly $100 million and be accretive to its earnings from the first year, as the company is hopeful that the buyout will improve the financial as well as operational flexibility of the combined company and contribute to the current growth strategy. The company is making considerable progress in integrating both businesses towards achieving anticipated synergies.

According to the President and CEO, Albert Chao, the company should benefit from strong demand and rising prices for Vinyls and Olefins products. Westlake Chemical is also well positioned to benefit from improving commodity prices along with continued recovery of crude oil prices.

Westlake Chemical’s shares rallied 22.4% in the last six months, outperforming the Zacks categorized Chemicals-Plastics industry’s gain of 5.9%.

The Olefins segment registered income of $149.5 million in the last quarter, an increase of 7.8% year over year. The segment benefitted from record production of ethylene which partly offset the impact of low margins of integrated olefin products.

However, the Vinyls segment reported income of $37.6 million in fourth-quarter 2016, a decrease of 27.1% year over year. The sales of this segment decreased due to lower production and sales volume, higher cost of selling Axiall inventory at fair value, unabsorbed fixed cost associated with manufacturing and planned turnaround at Lake Charles vinyls operations.

Stocks That Warrant a Look

Here are some companies in the basic materials space you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:

The CF Industries Holdings, Inc. CF has an Earnings ESP of +55.56% and sports a Zacks Rank #3.

Franco-Nevada Corp. FNV has an Earnings ESP of +10.00% and carries a Zacks Rank #3.

Ryerson Holding Corp. RYI has an Earnings ESP of +2.86% and carries a Zacks Rank #3.

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