As a result of extensive vertical integration, made possible by the acquisition and expansion of petrochemical and plastics manufacturing plants, Houston, Texas-based specialty chemical firm Westlake Chemical Corp. (NYSE:WLK) has established itself as a multifaceted force in a relatively specialized industry.
Among its petrochemical products, WLK focuses primarily on the production of the most globally demanded and historically utilized substances, ethylene and polyethylene - compounds which act physiologically as hormones in plants.
The original use of these substances can be dated back to ancient Egypt, where figs would be gassed in order to stimulate ripening, thereby releasing the ethylene produced organically in the plant. The ethylene manufacturing facilities are particularly important to the WLK vertical structure because they supply feedstock for a variety of other products produced by the firm.
The second division of the business, while not quite as historically significant, and which is quite successful, focuses on the manufacture of products fabricated from PVC, including pipe, fence, deck, and window and patio door components. Though products are produced exclusively in North America, they are exported overseas in order to fully take advantage of relevant markets for packaging, automotive products, coatings, residential and commercial construction, and durable and nondurable goods.
With over 2,000 employees in 14 locations in North America and a market cap over $2 billion, WLK has indeed built a strong and growing business. Its most recent quarterly revenue growth of 11.10% matches its industry average. While WLK matches its peers on the top line, it well surpasses its peers with highly successful profitability measures. Illustrating this point is its trailing twelve month operating margin of 16.07%, which is nearly triple the industry average of 5.58%. Its return on equity [ROE] of 24.24% is similarly proportional in comparison to the industry average of 8.30%, and places the firm among the top ten percent of competitors for this measure.
Valuation measures are also encouraging; WLK has a price to earnings [P/E] ratio of 8.28 compared to the industry average of 22.14. A trailing twelve month price to book ]P/B] ratio of 1.76 further underscores a positive outlook when compared to the 4.50 industry average. As a result of these factors, our multi-factor models continue to recommend owning the stock.
Disclosure: Westlake Chemical Corp. [WLK] is a holding in the Clear Mid Cap Value portfolio. Mr. Corn is CEO and founder of Clear Asset Management LLC and is invested in all seven of Clear’s separate account portfolios. Therefore he directly owns shares in [WLK].
WLK 1-yr chart