PPG Industries Gets A Deutsche Bank Downgrade On Growth Concerns

Deutsche Bank downgraded PPG Industries, Inc. PPG to Hold from Buy and cut its price target by 18 percent to $100 following the company's pre-announced Q3 earnings.

PPG expects Q3 EPS in the range of $1.54-$1.57, lower than consensus estimate of $1.71. The 8-10 percent earnings shortfall was attributed to slower growth in Europe with volumes flat-to down 0.5 percent in the third quarter versus up 3-4 percent in the prior quarters.

"While we believe the shares are slightly oversold and the company is of high quality with a strong balance sheet, we also believe that PPG's modest EPS growth in'16E (+4%), will continue into '17 (+6%)," analyst David Begleiter wrote in a note.

Begleiter noted that this sluggish growth reflects PPG's inability to grow organically as third quarter is the "7th straight qtr of <2% volume growth."

In addition, the analyst said tailwinds from raw materials is becoming headwinds in 2017 and cost savings was largely done. However, the company's Asia business is growing 4-5 percent and U.S. growth improving as well to 2-3 percent.

PPG also said it was "reviewing potential actions" to further reduce costs. This would be in addition to its current restructuring program which is expected to save $60-$70 million, or $0.17-$0.20, in 2016.

To reflect the third quarter shortfall and a more cautious view on growth, the analyst cut his 2016 EPS estimate by $0.18 to $5.92, 2017 forecast by $0.45 to $6.30, and 2018 view by $0.45 to $7.00.

"We believe investors, after having experienced several quarters of persistently weak growth, will be less willing to assign PPG a valuation multiple materially above its long-tem historical average of 15-16 forward earnings," Begleiter added.

At time of writing, shares of PPG fell 1.60 percent to $92.35.