Image Source: Pixabay
 

As part of our ongoing series at The Acquirer’s Multiple, each week we highlight a stock from our Stock Screeners that may be a deeply undervalued opportunity hiding in plain sight.

This week’s spotlight is Westlake Chemical Partners LP (WLKP) — the MLP affiliate of Westlake Corp., specializing in ethylene production and long-term feedstock supply under highly contracted arrangements.
 

Business Overview

WLKP operates a streamlined and capacity-secured ethylene production business with Westlake Corp. as its primary customer. The partnership structure provides fee-based income tied to volumes rather than spot commodity pricing, insulating the entity from typical ethylene margin volatility.

In contrast to traditional chemical operators subject to wide commodity swings, WLKP’s model provides:

✓ Long-term off-take contracts
✓ Cost-plus pricing structures
✓ Predictable capacity utilization
✓ Less sensitivity to energy and NGL spreads

The net result is a more stable distributable cash flow profile compared to upstream petrochemical peers.
 

What Is IV/P (Intrinsic Value to Price)?

IV/P compares a conservative intrinsic valuation to current price:

IV/P > 1 → Undervalued
IV/P < 1 → Overvalued

WLKP’s IV/P = 2.0, suggesting the partnership may be worth 2× its current market price under conservative assumptions — a notable margin of safety for an income-producing infrastructure-style chemical asset.
 

Supporting Metrics

(TTM / most recent period)

• Market Cap: ≈ US$ 740M–780M
• Enterprise Value: ≈ US$ 1.55B–1.60B
• Free Cash Flow (TTM): ≈ US$ 209M
• FCF Yield on EV: ≈ 13%–14%
• Acquirer’s Multiple: AM = 4.39

An AM below 6 places WLKP squarely in deep value territory — the market is pricing the partnership as though structural volume impairments or contract renegotiations are imminent, despite continued cash flow stability.
 

Revenue & Profitability

The income statement shows:

• Revenue (TTM): ≈ US$ 1.13B
• Gross Profit: US$ 350M
• Operating Income: US$ 322M
• Operating Margin: ≈ 28%
• Net Income: ≈ US$ 49M
• Net Margin: ≈ 4%
• Diluted EPS: ≈ US$ 1.40 (TTM)

Although net margin is modest due to partnership allocations and financing overhead, WLKP’s operating margins remain robust relative to commodity chemical peers — a direct result of fixed-margin ethylene processing contracts.
 

Balance Sheet Position

Balance Sheet shows:

• Total Assets: ≈ US$ 1.29B
• Total Liabilities: ≈ US$ 458M
• Total Equity: ≈ US$ 276M
• Net Debt: ≈ US$ 341M

WLKP carries leverage consistent with MLP-style infrastructure financing. Importantly, debt is supported by multi-year contracted off-take agreements, materially reducing terminal risk typically associated with commodity processors.
 

Cash Flow & Capital Efficiency

From the cash flow view:

• Operating Cash Flow (TTM): ≈ US$ 293M
• Free Cash Flow (TTM): ≈ US$ 209M
• CapEx (TTM): ≈ US$ -83M
• Financing Cash Flow (TTM): ≈ US$ -326M

The standout feature is WLKP’s ability to convert operating income into material free cash flow, even while distributing capital back to unit holders. The capital structure behaves more like a toll-road with contractual volumes than a speculative chemical processor.
 

Why WLKP May Be Undervalued

The valuation discount appears driven by perception gaps:

Market Concerns:
• Complex MLP structure with low coverage by generalist equity funds
• Commodity adjacency creates headline risk
• Long-term contract renewals perceived as uncertain
• Limited trading liquidity due to small float

But fundamentals suggest mispricing:
• FCF yield > 13% on EV
• Stable operating margins under long-term cost-plus model
• IV/P of 2.0 signals sizable intrinsic upside
• AM of 4.39 places WLKP deep in value territory
• Balance sheet leverage is contractual, not speculative

The partnership behaves more like an infrastructure cash-flow vehicle than a commodity cyclicals manufacturer — yet the market prices it like the latter.

Conclusion

With an IV/P of 2.0, an Acquirer’s Multiple of 4.39, and more than US$ 200M in annual free cash flow, Westlake Chemical Partners LP (WLKP) screens as a compelling deep value opportunity.

For investors comfortable with MLP structures and industrial cash-flow assets, WLKP presents an asymmetric mismatch between contractual FCF stability and market-implied cyclical risk.

Value-oriented investors may find that WLKP’s current pricing reflects headline fear rather than cash-flow reality.

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