Westlake’s 2007, 2008 EPS cut by JPMorgan

10 October 2007 14:29  [Source: ICIS news]

MUMBAI (ICIS news)--JPMorgan reduced Westlake Chemical Corp’s earnings per share (EPS) estimate on Wednesday on the back of slower domestic demand and a weaker margin outlook due to rising feedstock cost pressures.

The bank reduced the petrochemicals manufacturer’s 2007 EPS estimate to $2.10/share from $2.45/share earlier, and 2008 projection to $2.15/share (€1.52/share) from $2.55/share previously.

"Rising costs for feedstock ethane have weakened ethylene chain margins for polyethylene and PVC. We are less positive on ethylene chain margins for the coming 12-18 months," JPMorgan said.

PVC demand trends remained poor, with stronger export markets supporting industry operating rates and partly offsetting domestic weakness, it added.

The bank reduced Westlake’s third quarter 2007 EPS estimate to $0.75/share from $1.00/share.

"The 1-2 year outlook for PVC and fabricated products remain weak due to a cyclically weak weak US housing market, unfavorable export economics, and by early 2008, new industry capacity," it said.

The bank projected the vinyls segment to continue delivering weak operating results as industry operating rates declined to 87% in the first quarter of 2007 leading to declines in selling prices and sharply lower cash margins.

"We expect North American industry capacity [vinyls] to rise by 6% by early 2008," it added.

"Westlake will pursue growth via opportunistic acquisitions, such as that of Eastman’s PE unit, as the petrochemical downturn approaches. However, the size, timing, and relative cost of such acquisitions are inherently difficult to predict," JPMorgan said.

The bank expects olefins margins to begin a cyclical downturn during the second half of 2008 due to expected capacity growth in the Middle East and China.

JPMorgan said that economic weakness, which would negatively impact ethylene and PVC demand, and commodity market fluctuations could pose risks its rating on Westlake.

Shares of the company last closed at $25.58/share on the New York Stock Exchange.

($1 = €0.71)

By: Divya Chowdhury
+65 6780 4359

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