Weak Third Quarter for Westlake; Maintaining $40 Fair Value Estimate

Westlake reported weak third-quarter 2016 results, with EBITDA falling $136 million (43%) year on year to $182 million. Westlake has completed the acquisition of Axiall and is now the third-largest producer of PVC and chlor-alkali globally. The company remains the largest producer of specialty PVC and LDPE in the Americas. Over the coming years, the company will focus on achieving the targeted $100 million (about 1-2% of combined company costs) in synergies, expecting to realize $70 million of run rate synergies by 2017 at a one-time cost of $20 million. Having already incorporated the impact of the Axiall acquisition into our valuation model, we maintain our $40 per share fair value estimate. We continue to believe that profits have peaked for North American olefin producers and expect rising feedstock costs to weigh on results going forward.