© Reuters. KeyBanc Downgrades Dow, LyondellBasell and Westlake After Discussions
By Sam Boughedda
KeyBanc Capital Markets analyst Aleksey Yefremov stated in a research note on Monday that following discussions with consultants and companies, they are moving Dow Inc (NYSE:), LyondellBasell Industries (NYSE:), and Westlake Chemical (NYSE:) from Sector Weight to Underweight.
“We expect to see continued downside in US PE prices and model a $0.10/lb sequential decline in 3Q and a $0.05/lb decline in 4Q,” said Yefremov. “Our margin assumptions also move lower to reflect higher /ethane costs. Following the announcement by DOW to cut PE production by 15% this week, we believe LYB and WLK are likely to follow suit in reducing PE and other production.”
The analyst maintained price targets of $45 per share on Dow Inc, $73 per share on LyondellBasell Industries, and $90 on Westlake.
Regarding Westlake, he stated that it is also idling its styrene plant in the US due to market conditions, and they believe this primarily has to do with weakening demand in PE markets but also logistical constraints.
“Additionally, we see downside in PVC where domestic prices are likely to follow exports lower. All of this is before potential power shortages in Europe this winter. We see short-term risk/reward for names with meaningful commodity and European exposure skewed to the downside. We expect 4Q22 margins and earnings to approach ‘rough’ or ‘recession’ levels, while we move to sub-normalized 2023 estimates,” he concluded.
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