PPG Industries Investors Are Concerned Margin Cycle Turning Lower, Says Analyst

KeyBanc analyst Aleksey Yefremov reiterated an Overweight rating on the shares of PPG Industries Inc PPG and lowered the price target from $164 to $162 after the first-quarter FY24 earnings.

The company reported quarterly adjusted earnings of $1.86 per share, in line with the analyst estimate, whereas the quarterly sales came in at $4.31 billion, which missed the analyst consensus estimate of $4.43 billion.

Volumes have yet to see a material improvement, although the improvement trend over the last few quarters is convincing, said the analyst.

The analyst views the flat result in the quarter to be on the lighter side but expects improvement as 2024 unfolds, and accelerating into 2025.

Investors are concerned about the margin cycle turning lower, but the analyst sees the current level of petrochemical inflation as more than manageable in the context of PPG’s long-term margin history, modest rise in costs so far, and proactive portfolio improvement.

PPG maintained its $8.47 EPS guidance for 2024, which compared to the consensus of $8.47 and the analyst’s new $8.55 estimate.

While initial 2024 guidance had seemed conservative at the time, the analyst noted investor expectations after this print could reset closer to management’s view.

Second-quarter volumes are expected to grow in low-single-digits, driven by share gains in industrial, refinish, and packaging markets, while pricing should be ~flat to slightly positive. 

The $162 price target is based on 12.7x 2025E EBITDA. PPG shares currently trade at 11.4x the analyst’s 2024E EV/ EBITDA. 

Price Action: PPG shares are trading lower by 0.22% at $130.61 on the last check Monday.

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