Bloomberg News

Westlake Rises as Goldman Says Ethane-Oil Spread at Record

February 27, 2012

Westlake Chemical Corp. (WLK) rose the most in six weeks after Goldman Sachs Group Inc. (GS) said a record spread between oil and ethane will boost the plastics maker’s earnings more than analysts’ estimate.

Westlake, based in Houston, rose 5.9 percent to $61.04 at the close in New York, the biggest gain since Jan. 12.

“Consensus estimates are failing to give Westlake enough credit for the recent drop in ethane and the rise in oil prices,” Brian Maguire, a Houston-based analyst at Goldman, said in a report yesterday. “We expect Westlake’s first half EPS to substantially exceed current expectations.”

The price of Brent crude rose to a record 3.4 times U.S. Gulf Coast ethane on an energy-equivalent basis, said Maguire. Rising U.S. shale-gas output has depressed ethane prices, lowering Westlake’s costs to make plastics. Resin prices are poised to climb because of higher production costs in Europe and Asia, where oil-derived naphtha is the main feedstock, Maguire said.

Westlake, which offered to buy vinyls maker Georgia Gulf Corp (GGC) for $1.2 billion, gets the biggest earnings benefit from the widening spread between ethane and oil, outpacing larger rivals Dow Chemical Co. (DOW) and LyondellBasell Industries NV (LYB), Maguire said. Westlake may earn $7 a share this year, 32 percent more than analysts’ estimate on average, he said.

Maguire, who rates the shares “buy,” added Westlake to Goldman’s “Conviction” Buy List.

To contact the reporter on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net


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