UBS Starts RPM International Bullish Citing Self-Help Initiatives, Margin Upside

RPM International Inc. RPM is a defensive volume grower, with underappreciated margin upside from cost savings and continued price momentum, according to UBS.

The Analyst

UBS analyst Joshua Spector initiated coverage of RPM International with a Buy rating and price target of $85.

The Thesis

RPM International’s shares are currently trading at a significant discount to key peers, and this gap is expected to close as the company achieves margin expansion and continues generating organic growth even against a choppy macroenvironment, Spector said in the note.

He expects the company to generate annual EBITDA growth of around 17% over the next couple of years, backed by volume growth, price improvements and cost savings.

The UBS Evidence Lab survey indicated that intentions for home improvement projects remained high, and an increase of spending over the next three months of an average 5 to 10% sequentially and year on year, Spector said.

He added that repair and upkeep spend accounted for around two-thirds of RPM International’s sales, which is more defensive amid market uncertainty.

Citing RPM International’s strong free cash flows, the analyst said that the company may initiate M&A (merger and acquisition) or buybacks starting in May of fiscal 2021, both of which should be additive to EPS growth.

Price Action

Shares of RPM International were trading up 1.9% at $68.13 Thursday.

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