WLK Earnings Miss Triggers JP Morgan Downgrade

Westlake Corporation had a rough start to the week. Q1 earnings missed estimates by $0.67 per share, revenue fell year-on-year on weaker pricing, and JP Morgan responded with a downgrade to Underweight — the most negative call the stock has attracted in months. The stock dropped nearly 9% on Tuesday alone.

The analyst reaction was swift and decisive. JP Morgan's Jeffrey Zekauskas moved the stock to Underweight with a $90 price target — a 14% discount to where it traded going into the print. That is the bearish outlier. Wells Fargo, staying at Equal-Weight, cut its target from $125 to $110. Morgan Stanley, also at Equal-Weight, moved its target in the opposite direction — up from $80 to $115 — suggesting the sell-off itself partially priced in the damage. Citigroup remains the sole Buy-rated outlier with a $145 target, though that call dates to early April before the Q1 results landed. The mean target across the Street now stands at roughly $120, still above current levels at $104.78, but the direction of travel this week has clearly been downward.

Options positioning tells a more sanguine story than the price action suggests. The put/call ratio has actually fallen below its 20-day average, coming in at 0.35 against a mean of 0.46 — about 1.1 standard deviations below that baseline. That is an unusually low reading, close to the 52-week floor of 0.33. Rather than loading up on downside protection ahead of or after the miss, options traders appear to be buying calls — consistent with a view that the worst news is now in the price.

Short interest is modest and falling. At 2.5% of the free float, WLK is not a heavily shorted stock, and the trend over the past month has been sharply lower. Short positions have declined roughly 33% over 30 days, falling from nearly 4.9 million shares in early April to around 3.2 million now. The lending market is loose: the cost to borrow is just 0.55% annualised, barely above the general collateral rate, and availability is ample. Borrow demand peaked around the tariff-driven volatility in early April and has since retreated consistently. The short score of 54 — moderate, and drifting lower from 59 a fortnight ago — confirms there is no meaningful short-side accumulation in the name.

The bull-bear debate centres on the company's two distinct businesses. The Housing and Infrastructure Products segment carries the longer-term bull case: infrastructure spending trends favour PVC pipe and fittings demand, and the company's M&A-led build-out of that segment creates cross-selling leverage. The bear case is more immediate: PVC contract prices declined in Q3 and the Q1 miss underlines that chemical pricing remains under pressure. The European division is navigating a difficult macro environment. EV/EBITDA has compressed to 8.8x from nearly 10.5x a month ago — a meaningful de-rating. The P/E multiple has followed the same path, down sharply on the week. Yet EPS momentum factor scores remain near the top of the universe — in the 96th and 98th percentiles over 30 and 90 days respectively — pointing to a forward earnings picture that analysts still view more constructively than the current multiples imply.

One ownership detail worth noting: TTWF LP, the founding Chao family vehicle, holds 72.9% of shares outstanding. Capital Research took a meaningful new position in Q1, entering the top-ten holder list, while Wellington Management rebuilt a substantial stake — adding over four million shares in the quarter ending February. These are longer-duration holders, not momentum players, and their recent activity suggests conviction buyers were adding into weakness well before this week's earnings-driven move.

The key question heading into the rest of May is whether the JP Morgan downgrade and the Q1 miss mark a capitulation in analyst expectations — or the beginning of a more sustained revision cycle. The divergence between still-elevated forward EPS momentum scores and the direction of near-term analyst target cuts is the central tension worth tracking.