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Why You Should Hold Onto PPG Industries (PPG) Stock For Now

Zacks Equity Research

PPG Industries Inc. PPG is poised to gain from its cost-cutting initiatives, pricing actions and strategic acquisitions amid headwinds including soft industrial demand and raw materials cost inflation.

Shares of the paints giant, which currently carries a Zacks Rank #3 (Hold), have gained 4.2% so far this year, against its industry’s 29% decline.
 
 

 

What’s Working in PPG’s Favor?

PPG Industries has a diversified business, in terms of products offered and geographical presence. It has a leading position in several paints and coatings end markets. The company is aggressively managing costs and is also implementing appropriate pricing hike actions amid a challenging business environment.

PPG Industries remans focused on improving its cost structure. Its cost savings programs delivered around $20 million in savings in the second quarter of 2019. The company expects to achieve another $20 million in cost savings in the third quarter. PPG Industries has also started implementing a new cost-savings program, which targets full-year run-rate savings of roughly $125 million once completed.

The company is also undertaking steps to grow business inorganically. The company, earlier this year, completed the acquisitions of Whitford Worldwide and Hemmelrath. It expects these two along with the SEM Products acquisition to add around $400 million in annualized revenues.

PPG Industries also remains committed in its cash deployment with a focus on shareholder value creation over the long term. The company, last month, raised its quarterly dividend by 6% to 51 cents per share.

A Few Concerns

PPG Industries is exposed to challenges from sluggish global industrial activities. The company saw weaker industrial production across several key regions through the first half of 2019. Headwinds from soft industrial demand are likely to negatively impact its volumes. PPG Industries expects industry demand for several of its businesses to remain sluggish in the third quarter.

Moreover, PPG Industries still faces cost pressure associated with raw materials. It witnessed inflationary impacts through the first half. Some input cost pressure will likely to continue in the third quarter, albeit to a lesser extent than what was witnessed during the first half. The company remains focused on recovering margins through price increases amid an inflationary environment.

The company also faces some headwind from unfavorable currency translation. Currency swings reduced its sales by more than 3% or around $130 million in the second quarter. The company expects unfavorable currency impact of $30-$50 million on sales in the third quarter.

PPG Industries, Inc. Price and Consensus

 

PPG Industries, Inc. Price and Consensus

PPG Industries, Inc. price-consensus-chart | PPG Industries, Inc. Quote

Stocks to Consider

A few better-ranked stocks worth considering in the basic materials space include Kinross Gold Corporation KGC, NewMarket Corporation NEU and SSR Mining Inc. SSRM.

Kinross has projected earnings growth rate of 150% for the current year and carries a Zacks Rank #1 (Strong Buy). The company’s shares have surged around 67% in a year’s time. You can see the complete list of today’s Zacks #1 Rank stocks here.

NewMarket has an expected earnings growth rate of 16.2% for the current year and carries Zacks Rank #1. Its shares have gained around 17% in the past year.

SSR Mining has an estimated earnings growth rate of 165.2% for the current year and carries a Zacks Rank #1. Its shares have shot up roughly 83% in the past year.

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