Axalta Gaining Share, But Still Seeing Punishing Cost Pressure

My bullish call on Axalta (NYSE:AXTA) back in April of 2021 was the wrong call, as the shares have dropped about 20% since then - slotting in between PPG (PPG) (worse) and Sherwin-Williams (SHW). While my thesis of leveraging recovering volumes wasn't entirely off-base, the reality is that passenger vehicle volumes were hit harder than I expected by semiconductor shortages. On top of that, Axalta saw a punishing level of cost pressure that it couldn't fully offset with price.

I may be a glutton for punishment here, but I still think there's a buy argument for Axalta. The company has been gaining share in most of its major categories (refinish, light vehicle and commercial vehicle), and while there's a long way to go to recoup cost inflation, any meaningful easing of input costs (more likely in a slowing economy) would have a very positive effect on margins. Between low-single-digit revenue growth, high-teens EBITDA margins, and mid single-digit FCF growth, I think Axalta is undervalued now.

 

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Axalta Gaining Share, But Still Seeing Punishing Cost Pressure