Is Wall Street Misjudging Westlake (WLK) Stock?

Westlake may be undervalued with strong growth indicators, but the 17 analysts following the company give it an rating of hold. Their target prices range from $107.0 to $140.0 per share, for an average of $124.29. At today's price of $116.33, Westlake is trading -6.4% away from its average target price, suggesting there is an analyst consensus of some upside potential for the stock.

Westlake Corporation manufactures and markets performance and essential materials, and housing and infrastructure products in the United States, Canada, Germany, China, Italy, Taiwan, and internationally. Based in Houston, TX, the large-cap Industrials company has 15,920 full time employees. Westlake has provided a 1.2% dividend yield over the last 12 months.

Westlake has a trailing twelve month P/E ratio of 6.7, compared to an average of 20.49 for the Industrials sector. Based on its EPS guidance of 12.05, the company has a forward P/E ratio of 9.7.

The average compound growth rate of the company's historical and projected earnings per share is 30.0%. On this basis, the company's PEG ratio is 0.22. However, this growth rate is probably not sustainable. In its place we will use the broader market's estimated 5-year EPS growth rate of 10.8%, which gives us a PEG ratio of 0.61. Even with this more conservative assumption on EPS growth, the PEG ratio suggests that Westlake shares are underpriced.

Furthermore, the market is potentially undervaluing Westlake in terms of its book value because its P/B ratio is 1.49. In comparison, the sector average P/B ratio is 3.78. The company's shares are currently -10.7% below their Graham number, indicating that its shares have a margin of safety.

2019-12-31 2020-12-31 2021-12-31 2022-12-31
Revenue (MM) $8,118 $7,504 $11,778 $15,794
Gross Margins 15.5% 13.6% 29.7% 25.8%
Operating Margins 8.5% 6.2% 24.0% 19.5%
Net Margins 5.19% 4.4% 17.11% 14.23%
Net Income (MM) $421 $330 $2,015 $2,247
Net Interest Income -$124,000 -$142,000 -$176,000 -$177,000
Depreciation & Amort. -$713,000 -$773,000 -$840,000 -$1,056,000
Earnings Per Share $3.25 $2.56 $15.58 $17.34
EPS Growth n/a -21.23% 508.59% 11.3%
Diluted Shares (MM) 129 128 129 127
Free Cash Flow (MM) $514 $772 $1,736 $2,287
Capital Expenditures (MM) -$787 -$525 -$658 -$1,108
Net Current Assets (MM) -$4,116 -$3,780 -$4,668 -$4,112
Current Ratio 2.21 2.56 2.25 2.6
Long Term Debt $3,445,000 $3,566,000 $4,911,000 $4,879,000
Net Debt / EBITDA nan 1.88 0.9 nan
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.