Eventual Post-Pandemic Normalization And Better Margins Can Support A Higher Price For Axalta

 

Axalta’s (AXTA) recovery is probably going to look a little different than most other industrial companies, and certainly other coatings companies. With a large piece of the business leveraged to the auto refinish market, the post-pandemic recovery is likely to be a later in the cycle, driven by a more gradual return to pre-pandemic behaviors. Axalta also lacks meaningful exposure to architectural coatings, a significant driver for many paint companies given the strength in the residential new-build and remodel markets.

I don’t believe a modestly delayed recovery in revenue is a particularly good reason to avoid Axalta. I do also see the possibility for more M&A activity here – with both sides of the story (Axalta as a buyer or seller) in play.

Low single-digit revenue growth and mid-single-digit FCF growth, as well as mid-teens operating margin and low 22%’s EBITDA margin, can support a fair value in the low-to-mid $30’s today, and a long-term annualized return in the mid-to-high single-digits. I would argue that’s good enough to make Axalta worthy of further consideration.

 

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Eventual Post-Pandemic Normalization And Better Margins Can Support A Higher Price For Axalta