Westlake downgraded at J.P. Morgan on recession risk, valuation

Jun. 03, 2022 9:27 AM ETWestlake Corporation (WLK)IFF, ECL, LIN, APDBy: Carl Surran, SA News Editor

Petrochemical Refinery oil and gas industry

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Westlake (NYSE:WLK) -1.4% pre-market on Friday after J.P. Morgan downgraded shares to Neutral from Overweight with a $135 price target, citing valuation and rising risks of a global economic recession.

While recessionary risks could benefit the trading multiples of less cyclical companies such as Air Products (APD), Linde (LIN), Ecolab (ECL) and International Flavors and Fragrances (IFF), JPM analyst Jeffrey Zekauskas thinks those risks may weigh down the trading multiples of more cyclical companies such as Westlake.

Westlake (WLK) shares are 37% higher YTD in a market that is 13% lower, and Zekauskas believes "it may be the case that investors think harder about taking profits in WLK shares as interest rates rise, given WLK's marked level of outperformance."

Westlake (WLK) is "not the optimal vehicle" to capture the rally in commodity prices, and does not have a high normal dividend like its competitors, the analyst also said.

Westlake (WLK) is "an incomplete housing inventory play" that could benefit from pent-up demand as uncompleted house inventory rises, Valkyrie Trading Society writes in a bullish analysis posted on Seeking Alpha.

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