Westlake (WLK) was recently removed from both the Russell 1000 Value-Defensive Index and the Russell 1000 Defensive Index, an index reclassification that can prompt rebalancing by funds tied to these benchmarks.

Westlake's removal from the Russell defensive indices comes after a challenging period, with the share price down 12.3% over 30 days and 37.4% over 90 days, even as the year-to-date share price return is slightly positive and longer-term total shareholder returns remain weaker.

If you are reassessing your exposure to chemicals and materials stocks after this index change, it could be a good moment to broaden your watchlist through the 20 top founder-led companies

With Westlake shares down sharply over the past quarter and trading below the average analyst price target, the key question now is whether this pullback signals an undervalued chemicals stock or if the market already reflects its future prospects.

Most Popular Narrative: 29.1% Undervalued

At a last close of $74.77 versus a narrative fair value of $105.40, Westlake is framed as materially undervalued, with the case resting on long term infrastructure and cost restructuring themes.

The multi-year increase in municipal infrastructure spending in the U.S., fueled by the Infrastructure Act and ongoing underspend in water infrastructure, is structurally supporting long-term demand for Westlake's HIP (Housing and Infrastructure Products) segment, particularly for PVC pipes and fittings. This is creating a reliable revenue and volume growth driver that is described as being relatively unaffected by near-term housing volatility.

Curious how a company reporting a loss today is still modeled to support this valuation gap? The narrative leans on a sharp earnings reset, improving margins, and a richer future earnings multiple tied to these cash flow expectations.

Result: Fair Value of $105.40 (UNDERVALUED)

However, this hinges on global oversupply in key chemicals easing and on Westlake successfully executing its cost cuts and plant closures without further pressure on margins.

Another View on Westlake's Valuation

The narrative fair value for Westlake sits at $105.40, framed as 29.1% above the current $74.77 share price. However, the SWS DCF model paints a cooler picture, with an estimated future cash flow value of $68.25 that implies the stock is trading above this cash flow based estimate. Which lens do you find more convincing for your own work on Westlake?

To understand how this cash flow view is constructed and what assumptions sit behind it, take a closer look at the SWS DCF model output here, Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Westlake for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 44 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With mixed signals around Westlake's valuation and outlook, this is a moment to look at the numbers yourself and decide what really matters. To weigh the potential upside against the concerns investors are flagging, start by reviewing the 2 key rewards and 1 important warning sign.

Looking for more investment ideas beyond Westlake?

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• Target potential mispricings by scanning 44 high quality undervalued stocks that combine solid fundamentals with prices that may not fully reflect their underlying metrics.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.