US Municipal Spending And Urbanization Will Drive Demand

Key Takeaways

• Structural infrastructure demand and demographic trends create stable growth opportunities for HIP, with Westlake benefiting from balanced exposure to both new construction and repair markets.
  
• Cost-cutting, strategic integration, and a focus on sustainability enhance margin resilience, support consistent cash flow, and reduce exposure to cyclical risks.
  
• Sustained global oversupply, rising costs, weak demand, and regulatory pressures are compressing margins and revenue, prompting restructuring and heightening risks to future earnings stability.

Catalysts

Manufactures and markets performance and essential materials, and housing and infrastructure products in the United States, Canada, Germany, China, Mexico, Brazil, France, Italy, and internationally.

• The multi-year increase in municipal infrastructure spending in the U.S., fueled by the Infrastructure Act and ongoing underspend in water infrastructure, is structurally supporting long-term demand for Westlake's HIP (Housing and Infrastructure Products) segment-particularly for PVC pipes and fittings-creating a reliable revenue and volume growth driver unaffected by near-term housing volatility.
  
• Demographic trends and the long-term undersupply of homes are expected to drive a recovery in residential construction, positioning Westlake's balanced exposure to both new construction and repair/remodel markets to benefit from secular urbanization and infrastructure development, leading to sustained mid-single-digit organic HIP revenue growth and high EBITDA margins.
  
• Westlake's focus on structural cost reductions in the PEM segment (targeting $150-$175 million in 2025 and an additional $200 million by 2026) and footprint optimization-including the Pernis plant closure-is expected to drive margin recovery and improved earnings as global manufacturing stabilizes and plant reliability issues subside.
  
• Increased emphasis on vertical integration, advantaged U.S. feedstock positions, and diversified end markets insulate Westlake from cyclical energy and raw material price swings, supporting margin stability and consistent cash flow generation as global energy transition and demand for lightweight building materials accelerates.
  
• With a strong balance sheet, significant available cash, and focus on M&A in value-added and downstream segments, Westlake is positioned to continue portfolio diversification, capture opportunities in sustainable materials, and reduce business cyclicality-potentially driving revenue and earnings multiple expansion as the company aligns with circular economy and sustainability trends.

Westlake Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Westlake's revenue will grow by 4.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.6% today to 8.1% in 3 years time.
• Analysts expect earnings to reach $1.1 billion (and earnings per share of $5.32) by about August 2028, up from $-70.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.2x on those 2028 earnings, up from -152.2x today. This future PE is lower than the current PE for the US Chemicals industry at 23.9x.
• Analysts expect the number of shares outstanding to decline by 0.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.09%, as per the Simply Wall St company report.

Westlake Future Earnings Per Share Growth

Risks

• The continued global oversupply in core chemical chains, especially in Asia, has created sustained pricing pressure in Westlake's Performance and Essential Materials (PEM) segment, leading to declining sales prices and EBITDA margins and threatening long-term revenue and profitability if industry overcapacity persists.
  
• Higher North American feedstock and energy costs, combined with increased volatility in raw material markets, have significantly eroded net income year-over-year, suggesting sustained margin compression and vulnerability to further cost inflation, which may hinder earnings recovery.
  
• Prolonged weak global manufacturing activity and slow demand recovery in key end markets (notably construction and certain chemical derivatives) could result in persistent underutilization of assets and weak operating leverage, impacting revenue growth and net margins over the long term.
  
• Heightened exposure to trade uncertainty, including tariff threats and shifting export market dynamics (e.g., Brazil's tariff regime), makes Westlake's global sales-especially in commodity chemicals-more susceptible to demand volatility and could constrain export-driven revenue streams.
  
• The closure of the unprofitable epoxy facility in the Netherlands and ongoing cost-reduction and restructuring initiatives signal ongoing challenges in adapting to rapidly changing global regulatory, competitive, and environmental pressures, which may require continued asset rationalization and capital outlays, limiting free cash flow and future earnings potential.

Valuation

• The analysts have a consensus price target of $90.0 for Westlake based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $99.0, and the most bearish reporting a price target of just $75.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $13.5 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 13.2x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of $83.08, the analyst price target of $90.0 is 7.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.