Company Reports

Westlake reported strong second-quarter results, driven by higher PVC and polyethylene pricing in its performance and essential materials segment. Margin in the segment expanded to around 21% from a weak 3% in the second quarter of 2025.

Westlake's core strategy focuses on forward integration: It begins with ethylene and chlor-alkali production, moves through PVC resin, and ultimately captures margin in finished building products such as vinyl siding, pipe, and fittings. We view this as a sound strategic posture. It doesn’t confer a durable competitive advantage, but it improves earnings quality relative to a pure commodity chemical producer and partially insulates the firm from fluctuations in PVC supply conditions.

We are initiating coverage of Olin, the largest North American chlor-alkali producer, and Westlake, a large integrated producer of vinyl materials and building products. Coverage of Olin is prospective of the recently announced merger with Huntsman, creating OlinHuntsman.

Westlake's core strategy focuses on forward integration: It begins with ethylene and chlor-alkali production, moves through PVC resin, and ultimately captures margin in finished building products such as vinyl siding, pipe, and fittings. We view this as a sound strategic posture. It doesn’t confer a durable competitive advantage, but it improves earnings quality relative to a pure commodity chemical producer and partially insulates the firm from fluctuations in PVC supply conditions.

We contend that years of record profits are over for U.S. olefin producers that make ethylene, a chemical building block for plastics. Westlake Chemical generates the overwhelming majority of its profits from U.S. olefin production and serves as a play on the oil/gas price ratio as well as the fractionation spread, the difference between gas and natural gas liquid prices.

We are no longer providing equity research on Westlake Chemical. We provide broad coverage of more than 1,400 companies across more than 140 industries and adjust our coverage as necessary based on client demand and investor interest.

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.

We contend that years of record profits are over for U.S. olefin producers that make ethylene, a chemical building block for plastics. Westlake Chemical generates the overwhelming majority of its profits from U.S. olefin production and serves as a play on the oil/gas price ratio as well as the fractionation spread, the difference between gas and natural gas liquid prices.

Westlake reported lower 2016 results compared to 2015, with EBITDA declining 18% to $1 billion. Contracting olefin margins, higher turnaround costs, unplanned outages, and integration-related expenses more than offset the higher sales volumes from Axiall (which closed in the third quarter). While we expect ethylene margins to remain low going forward, expenses totaling roughly $260 million should be largely transitory as the company completes the turnaround and integration. With the debt-funded acquisition of Axiall, Westlake has also increased its debt to more appropriate levels (from less than 10% of enterprise value to roughly 30%), lowering our estimated cost of capital from 10% to 8.5%. Based on normalizing profits as one-time costs subside and a lower cost of capital, we are increasing our fair value estimate for Westlake to $45 from $40. Our narrow moat rating remains intact.

In our view, years of record profits are over for U.S. olefin producers that make ethylene, a chemical building block for plastics. Westlake Chemical generates the overwhelming majority of its profits from U.S. olefin production and serves as a play on the oil/gas price ratio as well as the fractionation spread, the difference between gas and natural gas liquid, or NGL, prices.

Westlake reported weak third-quarter 2016 results, with EBITDA falling $136 million (43%) year on year to $182 million. Westlake has completed the acquisition of Axiall and is now the third-largest producer of PVC and chlor-alkali globally. The company remains the largest producer of specialty PVC and LDPE in the Americas. Over the coming years, the company will focus on achieving the targeted $100 million (about 1-2% of combined company costs) in synergies, expecting to realize $70 million of run rate synergies by 2017 at a one-time cost of $20 million. Having already incorporated the impact of the Axiall acquisition into our valuation model, we maintain our $40 per share fair value estimate. We continue to believe that profits have peaked for North American olefin producers and expect rising feedstock costs to weigh on results going forward.

We are maintaining our $40 per share fair value estimate and narrow moat rating for Westlake Chemical after second-quarter earnings. EBITDA declined 31% to $247 million from the prior year as a result of turnaround costs and unplanned outages. We continue to believe that profits have peaked for North American olefin producers and expect rising feedstock costs to weigh on results going forward. The company should complete the acquisition of Axiall by the end of the fourth quarter this year, which we have accounted for in our valuation. We still forecast $100 million of synergies, about 1.4% of combined company costs, as per management’s latest estimates. If the company eventually realizes more than this target, we would raise our fair value estimate.

In our view, years of record profits are over for U.S. olefin producers that make ethylene, a chemical building block for plastics. Westlake Chemical generates the overwhelming majority of its profits from U.S. olefin production and serves as a play on the oil/gas price ratio as well as the fractionation spread, the difference between gas and natural gas liquid, or NGL, prices.

In our view, years of record profits are over for U.S. olefin producers that make ethylene, a chemical building block for plastics. Westlake Chemical generates the overwhelming majority of its profits from U.S. olefin production and serves as a play on the oil/gas price ratio as well as the fractionation spread, the difference between gas and natural gas liquid, or NGL, prices.

Westlake has agreed to acquire Axiall for $33 per share in an all-cash transaction, and the deal has been unanimously approved by the boards of both companies. This follows our prior note that Westlake could raise its offer following Lotte’s bid for Axiall on June 7. We think Westlake is overpaying for Axiall. This transaction is more than 40% higher than its earlier April offer of $14 cash and 0.1967 Westlake shares (approximately $23 total per Axiall share) with no additional synergies expected above the previously announced $100 million per year. Because Westlake would be paying more for Axiall than we think it’s worth, we are lowering our Westlake fair value estimate to $40 per share from $45 previously.

Lotte Chemical has made a bid for Axiall, which rejected Westlake Chemical's updated $23.35 per share offer in April. While Lotte's bid price was not disclosed, the market seems to think it was higher than Westlake's offer because Axiall's shares reacted favorably, trading up 9% on June 7 to over $25. Lotte's shares traded down 3.5%, potentially indicating that its shareholders think the bid would be too high. Lotte's bid increases the probability that Westlake will raise its offer again, which we would view unfavorably unless commensurate synergies were found to justify the higher price. We maintain our $45 fair value estimate for Westlake for now but will cut it if Westlake makes a higher offer that isn't supported by greater synergies.

Westlake Chemical reported decent first-quarter 2016 results, with EBITDA increasing 9% from the fourth quarter to $268 million. Similar to its peers that had already reported, the company saw fairly stable olefin margins as commensurate declines in feedstock costs accompanied declines in ethylene prices. While planned closures may tighten the market in the short term, the benefits for Westlake Chemical are offset by operating downtime as it completes its Petro 1 ethylene expansion. Over a longer time horizon, we continue to believe the company will be unable to restore the record profits of recent years. Although Westlake Chemical's operations will remain advantaged thanks to low-cost feedstock, a flatter cost curve and rising ethane feedstock costs should weigh on profits. We maintain our $45 per share fair value estimate and narrow moat rating.

In our view, years of record profits are over for U.S. olefin producers that make ethylene, a chemical building block for plastics. Westlake Chemical generates the overwhelming majority of its profits from U.S. olefin production and serves as a play on the oil/gas price ratio as well as the fractionation spread, the difference between gas and natural gas liquid, or NGL, prices.

We are slightly increasing our petrochemical fair value estimates following an update to our oil and natural gas price forecasts due to slightly wider margins. Since our midcycle natural gas price forecast falls slightly more (down 25% to $3/mmbtu) than our oil price forecast (down 14% to $60/bbl), North American petrochemical producers should see feedstock costs fall somewhat more than their average selling prices. Midcycle ethylene margins increase to approximately 18 cents per pound versus 17 cents previously.

In our view, years of record profits are over for U.S. olefin producers that make ethylene, a chemical building block for plastics. Westlake Chemical Corp. generates the overwhelming majority of its profits from U.S. olefin production and serves as a play on the oil/gas price ratio as well as the fractionation spread, the difference between gas and natural gas liquid, or NGL, prices.