As part of our ongoing series at The Acquirer’s Multiple, each week we highlight a stock from our Stock Screeners that may represent an undervalued opportunity hiding in plain sight.
This week’s spotlight is Westlake Chemical Partners LP (WLKP) — a master limited partnership focused on the production and sale of ethylene, a critical building block used across the global chemicals and plastics industries.
Despite operating a capital-intensive business, WLKP currently trades at valuation levels that may suggest investors are overlooking its strong profitability, substantial cash generation, and attractive valuation metrics.
Business Overview
Westlake Chemical Partners owns interests in facilities that produce ethylene, primarily for its parent company, Westlake Corporation.
Core components of the business include:
✓ Ethylene production
✓ Long-term supply agreements
✓ Petrochemical manufacturing assets
✓ Contract-based cash flows
✓ Distributions to unitholders
The partnership’s long-term commercial agreements provide a degree of cash flow stability despite the cyclical nature of the broader chemicals industry.
What Is IV/P (Intrinsic Value to Price)?
IV/P compares a conservative intrinsic valuation to the current market price.
IV/P > 1 → Undervalued
IV/P < 1 → Overvalued
WLKP’s IV/P = 2.10, suggesting the stock may be trading significantly below conservative intrinsic value estimates.
Supporting Metrics (Currency in USD)
Revenue (TTM): ≈ $1.23B
Operating Income (TTM): ≈ $359.5M
Net Income (TTM): ≈ $57.9M
Free Cash Flow (TTM): ≈ $276.5M
Acquirer’s Multiple (AM): 3.99
An Acquirer’s Multiple of just 3.99 places WLKP among the more attractively valued companies currently appearing on our Screener.
Revenue & Profitability
Westlake Chemical Partners continues to generate substantial operating profits despite fluctuations in revenue and challenging conditions across the chemicals industry.
Approximate margins:
Gross Margin ≈ 31.5%
Operating Margin ≈ 29.2%
Pre-Tax Margin ≈ 27.5%
Net Margin ≈ 4.7%
These results highlight the profitability of WLKP’s operations and the benefits of its long-term commercial arrangements.
Balance Sheet & Cash Flow
From the balance sheet:
Total Assets: ≈ $1.26B
Total Liabilities: ≈ $454.2M
Total Equity: ≈ $802.4M
Net Debt: ≈ $355.4M
Operating Cash Flow (TTM): ≈ $344.9M
Free Cash Flow (TTM): ≈ $276.5M
The partnership continues to generate substantial cash flow, providing support for capital expenditures, debt obligations, and distributions to unitholders.
This cash generation supports:
✓ Quarterly distributions
✓ Capital investments
✓ Debt servicing
✓ Ongoing operations
Why WLKP May Be Attractive
Market concerns include:
• Cyclicality across the chemicals industry
• Exposure to energy and raw material costs
• Customer concentration
• Capital-intensive operations
However, fundamentals remain compelling:
• Acquirer’s Multiple of 3.99 indicates an attractive valuation
• IV/P of 2.10 suggests significant potential undervaluation
• Strong operating profitability
• Substantial free cash flow generation
• Long-term commercial agreements
• Attractive distribution profile
Conclusion
With an IV/P of 2.10 and an Acquirer’s Multiple of 3.99, Westlake Chemical Partners screens as an attractive value opportunity currently appearing on our Screener.
While investors may remain cautious about the cyclical chemicals industry and WLKP’s concentrated business structure, the partnership continues to generate substantial operating and free cash flow. For value investors seeking a highly profitable business trading at a low valuation, WLKP may represent a compelling opportunity worthy of further research.
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