Westlake Reports Strong 1Q Results; Long-Term Outlook and $45 FVE Unchanged

Westlake Chemical reported improved first-quarter results, with adjusted EBITDA increasing 27% versus the fourth quarter of 2016 to reach $386 million. This was driven by improved ethylene margins and strong volume growth. Our long-term outlook for Westlake is intact. We expect ethane feedstock costs will rise over the next few years for Westlake. Strong ethane demand growth from new crackers in the Gulf Coast will require supply sources from higher-cost ethane production. Westlake will be unable to restore peak profits from prior years as higher feedstock costs keep ethylene margins subdued in a midcycle environment. Our $45 fair value estimate and narrow moat rating are unchanged.