Wall Street Analysts: Citrini's On-the-Ground Report on the Strait of Hormuz (Full Version)

It is clear from most of our conversations that the damage inflicted on oil refining and natural gas processing infrastructure has been severe—and significantly underestimated. Moreover, the current tightness in the refined products market is markedly greater than that in the crude oil market—precisely why this portfolio is overweight in refiners and refined-products-related assets. However, with transportation reopening, we expect near-term crude oil prices to decline—at least in the short run. We believe the U.S. petrochemical industry still offers the most asymmetric opportunities within these sectors. We lack sufficient confidence to forecast the short-term trajectory of the U.S. stock market, as it depends not only on the outcome of this conflict. Historically, outcomes have exhibited a highly dispersed distribution. If our assumption of sustained recovery in Strait traffic volume proves incorrect—and if volumes fail to continue rising in mid-to-late April, instead effectively shutting down—the global equity markets would likely plunge sharply (by approximately 15–20%). Our base-case scenario is that, as the conflict escalates and persists, equity markets will continue experiencing high volatility; however, broad concerns over a global energy crisis will gradually give way to a more nuanced view: Strait traffic volumes will increase, accompanied by elevated—but non-catastrophic—prices. The damage sustained by Gulf-region petrochemical infrastructure has already imposed structural impacts on this market, and we believe it is now approaching a potential cyclical inflection point—possibly making it the most asymmetric position. U.S. petrochemical companies with continued access to low-cost domestic feedstocks stand to benefit enormously from global supply dislocations and soaring prices. "Even before the outbreak of the Middle East conflict, we had begun observing early signs of market improvement in Q1. Now, price action and supply dynamics are evolving rapidly—and constructively. As early as March, we announced price-increase initiatives across every region and business unit globally." Global logistics have become highly uncertain. Affected by the Middle East situation, up to 50% of polyethylene supply is currently offline, constrained, or disrupted. Furthermore, inventory levels across the entire value chain are at historic lows. Dow Chemical raised its polyethylene price by $0.10 per pound in March, then again by $0.30 per pound in April—double the previously anticipated $0.15 increase. Last week, Dow CEO James Fitterling projected that—even after the Strait of Hormuz fully reopens—supply normalization could take 250 to 275 days, given priority shipping allocations for oil, natural gas, and fertilizers. The capacity destruction is real, and reconstruction timelines are measured in years—not quarters. We favor U.S. producers positioned advantageously: Dow Chemical (DOWUS) and Westlake Chemical (WLKUS) are our top holdings. Even if the Strait of Hormuz were to reopen completely tomorrow, we do not expect prices to revert to pre-conflict levels. This point carries significant implications for stocks still trading 50% below their historical highs. Macroeconomic Context Short-Term Interest Rates Approximately two weeks ago, we executed a trade: shorting ES (S&P 500 futures) while going long SFRH7.

As a column aimed at non-professional readers, we’ll start with the basics—first introducing relative valuation. I break this process down into three steps: 1. Selecting the appropriate metric 2. Identifying comparable companies 3. Calculating the company’s valuation When deciding how to value a company, we must first determine which type of metric best suits the task—that is, which indicator correlates most meaningfully with the company’s intrinsic value. Metric selection depends on the company’s nature. For example, a mining company’s primary asset is its mineral reserves. Since reserves deplete with extraction, using the P/E ratio may be inappropriate. Consider a mine originally valued at RMB 1 billion: after extracting RMB 100 million worth of ore, RMB 900 million remains. Thus, higher earnings might simply reflect larger extraction volumes—making the mine *less*, not more, valuable. For instance, the chart below ranks listed lead-zinc companies by net profit and total market capitalization. Clearly, the relationship between net profit and market cap is unstable—rendering the P/E ratio unsuitable. For pure mining operations, the P/B ratio may be more appropriate. By contrast, for other types of firms—such as fast-moving consumer goods (FMCG), utilities (water, electricity, gas)—profitability correlates strongly with enterprise value, making the P/E ratio more suitable. Once we’ve selected a valuation methodology, we must next identify comparable companies—a technical term referring to firms sufficiently similar to permit meaningful comparison. Generally, we select the closest possible peers. For example, when valuing JD.com, Alibaba would likely serve as a peer; when valuing China Unicom, China Telecom would be an appropriate comparator. Typically, we aim to include multiple comparable companies. The final step is calculating the company’s valuation. Take the P/E ratio as an example: P/E = Market Cap / Net Profit. So, multiplying the P/E ratio by the company’s earnings yields its estimated market capitalization. As noted earlier, under relative valuation, we adopt the average metric of the peer group—in this case, the average P/E ratio. Here, one key consideration is *how* to compute that average: simple average, median, or weighted average. All three approaches are viable—the choice depends on context. Ultimately: Market Cap = Average P/E × Net Profit; dividing by the number of shares outstanding yields the per-share valuation. To clarify relative valuation further, let’s walk through a small illustrative example. We’ll value绿城水务 (Lushui Water). Step 1: Select the appropriate valuation metric for this company. The water utility sector exhibits two key features: (i) weak cyclicality—water consumption remains relatively stable regardless of macroeconomic conditions; and (ii) enterprise value closely tied to net profit. Therefore, we select the P/E ratio as our valuation metric. Step 2: Identify comparable companies. There are 17 listed water utility companies; we select all of them as comparables. Step 3: Perform the valuation. To compute the industry’s average P/E ratio, we calculate each comparable’s P/E and then average them—yielding the following results: Here, we apply three averaging methods: simple average, median, and industry-wide weighted average.

Westlake Corporation (NYSE:WLK) Stock Has Average Price Target of $83.87

Oct 14, 2026

Westlake Corporation received a consensus "Hold" rating from sixteen brokerages with an average 12-month price target of $83.87. Shares opened near a one-year low despite beating quarterly EPS estimates and increasing its dividend.

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