Why You Should Retain PPG Industries (PPG) in Your Portfolio
PPG Industries Inc. PPG should benefit from its cost-control actions, pricing initiatives and strategic acquisitions amid headwinds including weak industrial demand.
Shares of the paints giant are down 25.7% over a year, outperforming its industry’s 49.8% decline.
Let’s see why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Going in PPG’s Favor?
PPG Industries is aggressively managing costs and is also implementing appropriate pricing actions. It remains focused on improving its cost structure and recovering margins through price increases amid an inflationary environment.
PPG Industries achieved more than $20 million in cost savings in the fourth quarter of 2019. The company expects to deliver an incremental $75 million in combined savings from its 2018 and 2019 restructuring programs in 2020.
The company is also taking steps to grow business through strategic acquisitions. PPG Industries, in early 2019, completed the acquisitions of Whitford Worldwide and Hemmelrath. The Whitford buyout further strengthened PPG Industries’ robust industrial coatings solutions portfolio while the Hemmelrath acquisition expanded its range of automotive coating products.
Moreover, the purchase of specialty materials maker, Dexmet Corporation, enables the company to add value to customers by enhancing product offerings as well as expanding R&D capabilities. The acquisition of Industria Chimica Reggiana also complements the company’s current product offerings for the automotive refinish and light industrial coatings industries. PPG Industries realized more than $300 million of acquisition sales in 2019.
The company also remains committed in its cash deployment with a focus on shareholder value creation over the long term. The company, in July 2019, raised its quarterly dividend by 6% to 51 cents per share. For 2019, PPG Industries returned around $800 million to shareholders, which includes roughly $325 million of share repurchases and around $470 million in dividends.
A Few Headwinds
PPG Industries faces challenges from sluggish global industrial activities. The company faced a soft industrial production environment in 2019. PPG Industries saw a reduction in global automotive OEM industry production activities, which affected its sales volumes in the fourth quarter of 2019.
While the company is witnessing a modest recovery in industrial demand in China, it expects soft general industrial demand to continue in the United States and Europe. The company’s sales volumes in the Industrial Coatings segment are expected to remain under pressure over the near term amid weak industrial demand. PPG Industries does not expect a rebound in volume growth in this segment before the second half of 2020.
The company also faces some headwinds from unfavorable currency translation. Unfavorable currency swings, due to the strengthening of the U.S. dollar, reduced its sales by around 3% in 2019. For 2020, the company expects unfavorable currency translation to lower its net sales by $20-$40 million and reduce net income by $3-$5 million.
Moreover, the company expects foreign currency translation headwinds to dent net sales by $15-$40 million in the first quarter of 2020. As such, headwinds from unfavorable currency may continue to exert pressure on sales and margins.
PPG Industries, Inc. Price and Consensus
PPG Industries, Inc. price-consensus-chart | PPG Industries, Inc. Quote
Stocks to Consider
Better-ranked stocks worth considering in the basic materials space are NovaGold Resources Inc. NG, Daqo New Energy Corp. DQ and Barrick Gold Corporation GOLD.
NovaGold has a projected earnings growth rate of 11.1% for 2020. It currently carries a Zacks Rank #1 (Strong Buy). The company’s shares have surged roughly 62% in a year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Daqo New Energy has a projected earnings growth rate of 422.8% for 2020. The company’s shares have rallied around 57% in a year. It currently sports a Zacks Rank #2 (Buy).
Barrick Gold currently has a Zacks Rank #2 and a projected earnings growth rate of 43% for 2020. The company’s shares have rallied around 26% in a year.
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