New Technologies Like Nimbus And Irus Scan Will Improve Customer Productivity Amid Challenges

Key Takeaways

• Strategic acquisitions and technological innovations are driving growth, enhancing margins despite macroeconomic challenges.
  
• Cost reduction and operational efficiency initiatives are projected to improve margins and earnings significantly.
  
• Macroeconomic challenges and market dynamics may affect revenue and margins, while interest rate fluctuations pose risks due to high leverage.

Catalysts

Through its subsidiaries, manufactures, markets, and distributes high-performance coatings systems in North America, Europe, the Middle East, Africa, the Asia Pacific, and Latin America.

• The company is benefiting from recent acquisitions and strategic wins in the Refinish and Light Vehicle segments, which are expected to drive revenue growth and margin expansion despite macroeconomic headwinds.
  
• Their focus on innovative technologies like Axalta Nimbus and Irus Scan, which enhance customer efficiency and productivity, is expected to support revenue growth and improve net margins by providing higher-value solutions.
  
• Axalta's ongoing transformation initiatives, aimed at cost reduction and operational efficiency, are projected to generate significant annualized savings by 2026, improving net margins and earnings.
  
• The company is expanding its premium segment offerings and entering the economy segment with strategic acquisitions such as CoverFlexx, which is anticipated to enhance revenue and support margin growth.
  
• There is a focus on capital investments and productivity improvements across their manufacturing facilities, expected to improve efficiencies, reduce costs, and thus bolster net margins and earnings.

Axalta Coating Systems Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Axalta Coating Systems's revenue will grow by 2.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.2% today to 11.6% in 3 years time.
• Analysts expect earnings to reach $654.1 million (and earnings per share of $3.2) by about December 2027, up from $327.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.0x on those 2027 earnings, down from 24.2x today. This future PE is lower than the current PE for the US Chemicals industry at 21.5x.
• Analysts expect the number of shares outstanding to decline by 2.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.29%, as per the Simply Wall St company report.

Axalta Coating Systems Future Earnings Per Share Growth

Risks

• The Refinish business experienced volume declines due to macroeconomic headwinds and market consolidation, which could impact future revenue growth if these trends persist.
  
• Price-mix dynamics, such as raw material pass-through timing and unfavorable mix, could pressure margins in Refinish and Mobility Coatings, affecting overall net margins.
  
• The Automotive market presents uncertainty, with potential for softening production rates impacting Mobility Coatings revenue, despite share gains and new wins.
  
• The Commercial Vehicle segment faces declines due to drops in production rates, particularly in North America and Latin America, posing risks to revenue and earnings in the Mobility Coatings business.
  
• Axalta's high leverage, partly due to floating rate debt, subjects it to interest rate fluctuations, potentially impacting net earnings if rates rise further.

Valuation

• The analysts have a consensus price target of $44.24 for Axalta Coating Systems based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $51.0, and the most bearish reporting a price target of just $39.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $5.6 billion, earnings will come to $654.1 million, and it would be trading on a PE ratio of 17.0x, assuming you use a discount rate of 7.3%.
• Given the current share price of $36.39, the analyst's price target of $44.24 is 17.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.