Analysts Mixed, But Mostly Bullish on Axalta Coating Amid Expiration of Sell-Side Quiet Period

Axalta Coating Systems Ltd. AXTA has finally caught the sell-side’s attention. The company had received no analyst ratings since its public debut on the NYSE in November, but suddenly saw four research firms initiate coverage on its stock on Monday.

Nomura and Deutsche Bank issued Buy recommendations, with $33 and $32 price targets, respectively; JP Morgan gave the stock an Overweight rating, accompanied by a $30 price target; and Goldman Sachs assumed coverage with a Neutral and a $29 price target. So, as you can see, the general sentiment is quite bullish, and sent the stock slightly up (about 0.6 percent, to $27.11) on Monday.

You might wonder why did all the ratings come out at once. Well, it’s because the quiet period expired on Monday.

What’s A Quiet Period?

Put simply, U.S. law bans recently-public companies to issue promotional publicity on the stock for at least 40 days after the IPO. The purpose behind this is avoiding an artificial inflation of the stock price; this is why this stage is also called a “cooling-off period.”

What Are Analysts Saying?

As we stated above, Axalta Coating felt research firms’ bullishness after the end of the quiet period. Apparently, bulls are encouraged by changes in operations and commercial practices under new ownership. After an extensive restructuring, “there are $100m in costs ($0.30/sh) likely to be removed by 2017 with an opportunity to achieve $200m ($0.60/sh),” JP Morgan’s Jeffrey J. Zekauskas explained.

In addition, analysts find Axalta Coating’s stock valuation quite attractive when compared to its coating peers: “While Axalta shares are up 38% since the November 11th IPO (S&P 500 +2%), valuation remains compelling at 10.8x ‘15E EBITDA vs peers at 13x due to a combination of high leverage (4.2x net debt/EBITDA) and lack of a long-term earnings track record,” Deutsche Bank analysts led by Ramanan Sivalingam stated.

The specialists also said that they see “Axalta's Refinish business as one of the best and most stable businesses in coatings, which coupled with new business wins in Auto OEM should drive a stable 7 percent EBITDA CAGR thru '17 (…) in Refinish Coatings, Axalta’s largest segment, Axalta holds a #1 position with a 25% global market share. PPG is a close #2 with ~20% market share and BASF is #3 with ~12% market share (…)Axalta is a #2 global player in Auto OEM coatings and is poised to achieve above market growth thru a number of new business wins amongst Auto OEM customers.”

On the downside, the company’s high leverage and substantial exposure to the lagging European economy linger as considerable risks.