Strait to the Point

BMO Capital Markets $BMO ( ▼ 1.86% ) upgraded Westlake $WLK ( ▲ 1.65% ) to Outperform, with analyst Bhavesh Lodaya hiking his price target to $127.

The thesis starts with the Strait of Hormuz. Iran's blockage of the strait has knocked 12-13% of global polyethylene supply offline. The region accounts for 15% of world capacity.

That shock pushed global utilization from roughly 80% to more than 90%, per Lodaya, handing Westlake meaningful pricing power almost overnight.

Polyethylene is the plastic in grocery bags, bottles, and most packaging. It’s unglamorous, ubiquitous, and right now, scarce.

Lodaya's previous concerns centered on a shrinking ethane cost advantage and weak supply-demand dynamics across the broader ethylene sector. The Middle East conflict changed the math on both.

Westlake produces the bulk of its output in the US, giving it the highest share of business tied to the American ethane advantage compared to any peer.

That positioning shields it from the volatility hitting Middle Eastern and European producers while potentially allowing it to gain pricing power as competitors are sidelined.

BMO also sees Westlake's balance sheet continuing to strengthen. Even with a higher working capital build factored in, Lodaya projects free cash flow of approximately $280 million in 2026.

The company's dividend has, in his words, stood the test of time.

Of 18 analysts covering the stock, just eight rate it a Buy or Strong Buy, while nine give it a Hold and one an Underperform.

BMO is also counting on Westlake's operating leverage to a US housing recovery as an additional tailwind into 2027. The company makes housing and construction supplies alongside its plastics business, giving it two potential catalysts that the consensus may be underpricing.

In an age of AI bets and chip wars, Westlake makes plastic bags. Turns out, there's a great future in them.