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Axiall Corp (AXLL): This Undervalued Company Is Benefiting From Multiple Drivers

Peer comparison

Axiall’s peers include Westlake Chemical Corporation (NYSE:WLK) and The Dow Chemical Company (NYSE:DOW).

Westlake Chemical Corporation (NYSE:WLK) is a manufacturer of petrochemicals and fabricated products. It competes with Axiall in the Vinyl Chloride Monomer (VCM) and PVC markets. It is adding chlor-alkali capacity with a plant in Geismar, Louisiana, which has a capacity of 350,000 electrochemical units and is expected to start in the fourth quarter of 2013. Westlake Chemical Corporation (NYSE:WLK) registered record quarterly earnings per share of $1.84 for the most recent quarter, representing a 39% year-on-year increase on the back of higher selling prices and lower feedstock costs. Its advantage over Axiall is that it is more vertically integrated, supplying some of its own ethylene needs. Despite this, Westlake Chemical is not as attractive as Axiall Corp (NYSE:AXLL) in terms of valuation, trading at 11.9 times forward P/E, compared with a forward P/E of 8.4 for Axiall.

The Dow Chemical Company (NYSE:DOW) is the largest chemical company in the U.S. and the largest producer of chlor-alkali products globally. The Dow Chemical Company (NYSE:DOW) and Mitsui completed the formation of a 50/50 joint venture for a chlor-alkali facility in Freeport, Texas, at the end of 2010. In line with a muted economic outlook, Dow Chemical’s quarterly sales and volume remained flat for the first quarter of 2013. Going forward, portfolio optimization will be the name of the game, with Dow Chemical setting itself a target of $1.5 billion of sales proceeds from divestitures. I am concerned about Dow Chemical’s agricultural sciences business, which accounts for about one-fifth of its EBITDA, as the fortunes of this segment are closely linked with difficult to predict changes in the weather.

Conclusion

Since its earnings announcement in May 2013, Axiall’s share price has fallen by 37%. As a beneficiary of both the shale gas boom and the housing market recovery, Axiall Corp (NYSE:AXLL) is now valued attractively at a forward P/E of 8.4, making it a worthy investment candidate in my opinion.

The article This Undervalued Company Is Benefiting From Multiple Drivers originally appeared on Fool.com and is written by Mark Lin.

Mark Lin has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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