Partnerships With Dürr And Irus Mix Machine Will Drive Future Efficiencies And Revenue Streams

Key Takeaways

• Focus on cost reductions and strategic acquisitions is expected to drive margin expansion and revenue growth despite economic challenges.
  
• Partnerships and innovations in digital solutions are anticipated to enhance operational efficiencies and open new revenue streams.
  
• Axalta's growth is threatened by macroeconomic challenges, trade tariffs, inflation pressures, leadership changes, and reliance on declining end markets.

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.

• Axalta is focusing on margin expansion through improved price mix and cost reductions, which is expected to improve net margins and earnings.
  
• The acquisition of CoverFlexx and securing net new body shop wins are anticipated to drive revenue growth, despite a challenging macroeconomic environment.
  
• The transformation initiative has already yielded savings and is projected to result in $30 million to $40 million of incremental benefit in 2025, which could enhance net margins and earnings.
  
• Axalta's partnerships, such as the one with Dürr for digital paint solutions, and innovations like the Axalta Irus Mix machine are expected to drive operational efficiencies and open new revenue streams.
  
• Continued strength in the Light Vehicle market, particularly in China and Latin America, is expected to outpace global trends, contributing to revenue growth and potentially improving net margins through an advantageous customer mix.

Axalta Coating Systems Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Axalta Coating Systems's revenue will grow by 2.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.4% today to 10.7% in 3 years time.
• Analysts expect earnings to reach $613.9 million (and earnings per share of $2.98) by about March 2028, up from $391.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.8x on those 2028 earnings, down from 19.5x today. This future PE is lower than the current PE for the US Chemicals industry at 22.1x.
• Analysts expect the number of shares outstanding to decline by 1.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.76%, as per the Simply Wall St company report.

Axalta Coating Systems Future Earnings Per Share Growth

Risks

• Despite achieving record net sales and adjusted EBITDA, Axalta faces persistent macroeconomic challenges and foreign currency headwinds, which could negatively impact revenue growth and profit margins.
  
• The company anticipates inflationary pressures in certain areas and projects low single-digit raw material inflation for 2025, which might squeeze net margins if not effectively offset.
  
• The new tariffs imposed by the U.S. government on Canada, Mexico, and China might create a challenging trade environment, resulting in potentially lower demand and increased costs, impacting net margins.
  
• Axalta's growth is heavily reliant on securing new business wins in declining end markets, such as Refinish and Industrial Coatings, which could pose a risk to consistent revenue growth if market conditions worsen.
  
• The recent retirement of key leadership in the Industrial business and the execution of operational excellence initiatives pose execution risks, and delayed benefits from these changes could affect earnings growth.

Valuation

• The analysts have a consensus price target of $43.98 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 $34.61.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.7 billion, earnings will come to $613.9 million, and it would be trading on a PE ratio of 18.8x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $34.93, the analyst price target of $43.98 is 20.6% 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.