Deutsche Bank Initiates Coverage On Axalta Coating Systems

Deutsche Bank initiated coverage on Axalta Coating Systems Ltd AXTA Monday with a Buy rating and $32 price target.

Analysts led by Ramanan Sivalingam noted that the “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.”

Sivalingam viewed “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. We believe that as Axalta deleverages and builds a consistent earnings track record, its valuation gap vs peers will narrow.”

“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. Axalta has won business at 26 Auto plants globally that will drive $275MM of revenue growth ’13-’17E. This alone equates to a 4.5 percent CAGR for Axalta’s Light Vehicle sales,” according to the analyst note.

Sivalingam concluded, “Given its strong market positions coupled with positive global economic growth, we forecast 5 percent sales CAGR from $4.4B in ‘14E to $5.1B in ‘17E and a 7 percent EBITDA CAGR from $840MM in ‘14E, to $1.03B by ’17.”

Axalta Coating Systems Ltd recently traded at $27.10, up 0.59 percent.