Balanced Risk-Reward for PPG Industries - Analyst Blog

On Apr 22, we issued an updated research report on PPG Industries PPG. While the coatings giant should gain from continued strength across North American automotive and aerospace markets, it remains exposed to a still soft European market, raw material cost pressure and currency headwind.  

 

PPG Industries' adjusted earnings for first-quarter 2014, reported on Apr 17, topped the Zacks Consensus Estimate. Reported profit jumped on continued strength in the company's coatings business and its cost management initiatives. Revenues rose by double digits on healthy momentum across aerospace and automotive markets, but missed expectations. PPG Industries sees favorable market conditions across major end-markets in 2014. 

 

PPG Industries has a diversified business, both in terms of products offered and geographical presence. It has a leading position in several paints and coatings end markets.

 

PPG Industries is taking steps to grow its business inorganically by making a number of acquisitions. The acquisition of Akzo Nobel's (AKZOY) North American architectural coatings business has reinforced its branded paint product offerings and scale in the North American architectural paint market.

 

Moreover, PPG Industries is pursuing a $102 million business restructuring focused on achieving cost synergies associated with the North American architectural coatings business takeover. 

 

PPG Industries also has an impressive record of returning cash to shareholders through dividends and share buybacks. The company recently raised its quarterly dividend by 10% to 67 cents per share. Moreover, its Board recently authorized the repurchase of shares worth $2 billion

 

However, PPG Industries may face macroeconomic challenges going ahead. While the company is seeing modest improvements in Europe of late, it may continue to face softness in the region with sluggish economic activity and a still challenging demand environment.  

 

Moreover, PPG Industries remains exposed to raw material cost pressure and unfavorable currency exchange swings, especially in emerging markets. Moreover, some of the end markets such as non-residential construction, marine coatings and European architectural coatings remain sluggish.

 

Other Stocks to Consider

 

Other companies in the chemical industry worth considering include The Dow Chemical Co. DOW and Celanese Corp. CE with both carrying a Zacks Rank #2 (Buy).