Many stocks tied to the expected (and already emergent) economic recovery have already run, but while PPG Industries (PPG) shares are already back to pre-pandemic levels, they don't seem to fully reflect the benefits of improving auto and industrial end-markets, as well as strong housing demand and an eventual recovery in aerospace. On top of that, PPG has made better progress on costs than seems to be reflected in the multiple, and I like management's recent decisions to deploy meaningful capital toward M&A.
To be clear, PPG isn't a screaming buy, and a modestly higher discount rate (were long-term rates to start rising) would definitely shift the value argument. On the other hand, I think PPG can take advantage of improving end-market demand, leveraging both volume and price growth and past structural cost improvements. Between long-term FCF growth of around 5% and a forward EBITDA multiple in the 13x-14x range, I believe these shares do offer decent high single-digit annualized total return potential.
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Inflation Is A Risk, But PPG Industries Has Good Recovery Leverage
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