Investments In Aerospace And Coatings Will Expand Global Reach

Key Takeaways

• Strategic investments in innovation and high demand in key segments are likely to boost PPG's revenue and earnings growth.
  
• Efficiency improvements and cost controls are expected to enhance margins, especially in Europe and Mexico.
  
• Unfavorable currency trends, lower automotive production, and geopolitical issues could negatively impact PPG's revenue and profitability across multiple segments.

Catalysts

Manufactures and distributes paints, coatings, and specialty materials in the United States, Canada, the Asia Pacific, Latin America, Europe, the Middle East, and Africa.

• PPG is beginning to realize the benefits of its enterprise growth strategy started in 2023, with a focus on organic sales growth through strategic investments in innovation, which is expected to impact revenue positively.
  
• There is strong performance and expected continued demand in the Aerospace and Protective & Marine Coatings segments, driven by technology advantage products and share gains, which is likely to enhance revenue and earnings.
  
• PPG is implementing efficiency improvements and cost controls, particularly in Europe and Mexico, which should lead to margin improvement and thus potentially better net margins.
  
• They anticipate significant share gains, particularly in the Industrial Coatings segment with automotive OEMs, expected to drive revenue growth above industry levels, starting in the third quarter.
  
• PPG is executing growth-related investments to support demand in Performance Coatings, including in Refinish through digital productivity tools, expected to improve revenue and earnings as volume grows.

PPG Industries Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming PPG Industries's revenue will grow by 2.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.4% today to 11.5% in 3 years time.
• Analysts expect earnings to reach $1.9 billion (and earnings per share of $9.04) by about May 2028, up from $1.3 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $1.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.5x on those 2028 earnings, down from 18.8x today. This future PE is lower than the current PE for the US Chemicals industry at 20.2x.
• Analysts expect the number of shares outstanding to decline by 3.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.35%, as per the Simply Wall St company report.

PPG Industries Future Earnings Per Share Growth

Risks

• Unfavorable foreign currency translation, particularly affecting the Global Architectural Coatings segment, could continue to impact PPG's revenue and profitability if currency trends persist.
  
• The automotive industry's lower production levels, especially in the U.S. and Europe, may negatively affect PPG's Industrial Coatings segment's sales and profitability.
  
• Geopolitical uncertainty and paused project spending in Mexico could hinder growth in the Architectural Coatings segment, potentially affecting revenue and margins if prolonged.
  
• Industrial Coatings faces downward pressure from a 1% decline in selling prices due to index-based customer contracts, which could impact revenue and net margins.
  
• Regional inflation, particularly from a weaker peso impacting Latin American operations, combined with lower sales volumes, may further erode segment EBITDA margins despite cost control measures.

Valuation

• The analysts have a consensus price target of $126.332 for PPG Industries 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 $166.0, and the most bearish reporting a price target of just $105.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $16.8 billion, earnings will come to $1.9 billion, and it would be trading on a PE ratio of 16.5x, assuming you use a discount rate of 7.3%.
• Given the current share price of $108.56, the analyst price target of $126.33 is 14.1% 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.