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Analysts See PPG's Price, Cost Tailwinds Driving Margins With Additional Tailwinds From Auto Business Post 4Q Beat

  • BMO Capital analyst John P. McNulty had an Outperform on PPG Industries, Inc PPG with a $151.00 price target.
  • PPG posted a solid 4Q beat, exceeding most expectations with stronger-than-expected pricing and volume that, while down, was likely to be modestly better than feared. 
  • The 1Q guide was modestly below consensus owing primarily to higher pension exp (noncash) and seems like a low bar set for the new CEO. 
  • Expectations were low going into the print, with fears that China and Europe would trip up 4Q and drive an adamant 1Q guide. 
  • The analyst believes the results exceeded, the guide was as expected, and the stock should push higher.
  • RBC Capital analyst Arun Viswanathan had a Sector Perform rating and a $129.00 price target.
  • Viswanathan views PPG’s guidance as consistent with peers who provided earnings guidance 10-15% below the Street.
  • The analyst views the report as consistent with his recent rating downgrade on PPG due to limited implied upside and volume headwinds in FY’23.
  • KeyBanc analyst Aleksey Yefremov had an Overweight rating and a price target of $144.
  • Higher corporate expenses (due to noncash pension expense) and interest contributed to the 1Q EPS miss vs. the analyst’s estimate. 
  • The segments’ results (ex. corporate expense) appear to be slightly ahead of the analyst’s forecast, compelling to encourage investors to look through the “messy” accounting in 1Q and focus on the critical trends of improving margins, more resilient than expected volumes, and overall EBITDA growth in 2023.
  • However, pension, interest, and taxes will affect 1Q apart from weak demand in Europe and a higher impact on China business due to COVID. The analyst believes the latter is a short-term issue.
  • PPG continues to see tailwinds from a price and cost perspective and expects margins to track toward normalized levels in 2023. 
  • Additionally, the company highlighted strength in its auto refinish and auto OEM businesses, which the analyst view as a positive read-through for competitor AXT Inc AXTI.
  • Morgan Stanley analyst Vincent Andrews had an Equal Weight with a $120.00 price target.
  • Andrews expected a mixed response as expectations moved lower for quite some time now, with the buy-side already below the sell-side consensus for 2023.
  • The analyst does not expect the lack of full-year guidance to surprise much, though full-year street numbers will likely continue to move lower in a wide range.
  • The visibility is limited in terms of the entire year 2023 outcome in both China and Europe.
  • Mizuho analyst Christopher Parkinson reiterated Buy with a $142.00 price target.
  • The analyst views the results as Neutral as 1Q guidance is weak on the higher corporate expense, with underlying fundamentals in line and baking-in LSD inflation. The analyst believes the buy-side was also aware that the 1Q consensus is ridiculously stale. 
  • Performance Coatings slightly beat expectations but still navigates macro challenges.
  • Parkinson highlighted solid industrial execution with ’23 auto expectations still in focus.
  • Price Action: PPG shares traded higher by 6.51% at $131.65 on the last check Friday.
  • Photo Via Company

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