Shares of Westlake Corp. dropped 1.4% in premarket trading Friday, after J.P. Morgan downgraded the building products and petrochemicals company, citing increasing risks of a global economic recession and valuation. The stock had soared 37.3% year to date to close Thursday just 5.0% below its May 4 record close of $140.33, while the S&P 500 has shed 12.4% this year. Analyst Zekauskas cut his rating to neutral, after being at overweight for the past 18 months. “[W]e think that recessionary risks may weigh down the trading multiples of more cyclical companies such as [Westlake],” Zekauskas wrote in a note to clients. “It may be the case that investors think harder about taking profits in [Westlake] shares as interest rates rise, given [Westlake’s] marked level of outperformance.” Zekauskas also believes Westlake’s stock is “not the optimal vehicle” to capture the rally in commodity prices, and doesn’t have a high normal dividend like its competitors. At Thursday’s closing prices, Westlake’s implied dividend yield is 0.89%, compared with the yields for LyondellBasell Industries N.V. of 4.37%, for Dow Inc. of 4.11% and the implied yield for the S&P 500 of 1.54%.
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