On Jan 6, Zacks Investment Research upgraded coatings giant PPG Industries (PPG) to a Zacks Rank #1 (Strong Buy).
Why the Upgrade
PPG Industries is seeing continued strength across North American automotive and aerospace markets and is well placed to gain from synergies from acquisitions and cost containment measures.
PPG Industries is benefiting from healthy momentum across major end-use markets such as automotive OEM, automotive refinish and aerospace and continued demand recovery in Europe. The company also stands to benefit from the recent fall in oil prices as it is expected to lower its input costs, leading to margin expansion.
PPG Industries has seen its shares shoot up around 24% since its healthy third-quarter 2014 results, reported on Oct 16, 2014. Adjusted earnings for the quarter topped the Zacks Consensus Estimate. Reported profit surged on gains across major regions, especially Europe, and the company’s cost reduction initiatives. The company expects its strong earnings performance to continue in the fourth quarter.
PPG Industries has a diversified business and holds a leading position in several paints and coatings end markets. It is taking steps to grow its business inorganically by making a number of acquisitions.
The acquisition of Akzo Nobel’s (AKZOY) North American architectural coatings business has reinforced PPG’s branded paint product offerings and scale in the North American architectural paint market.
Moreover, the buyout of Mexico’s leading paint company – Consorcio Comex S.A. de C.V. – for $2.3 billion represents a significant move by PPG as it will reinforce its architectural coatings business in Mexico and Central America by offering a leading architectural coatings portfolio.
The acquisition of architectural paint distributor – Westmoreland Supply – is also expected to broaden PPG’s company-owned stores network in North America.
PPG Industries also has an impressive record of returning cash to shareholders through dividends and share buybacks. The company returned $719 million to its shareholders in the form of dividends and share repurchases through the end of the third quarter. It plans to spend at or above the higher end of its earlier announced expectation of $3 billion to $4 billion of cash this year on acquisitions and share repurchases.
Other Stocks to Consider
Other companies in the chemicals space worth considering include Air Products & Chemicals Inc. (APD) and Valhi, Inc. (VHI), with both holding a Zacks Rank #2 (Buy).
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