PPG Industries Plowing Through Ongoing Headwinds, But Valuation Is Getting Interesting

 

Roughly six months removed from my last update on PPG Industries (PPG), it’s clear that, bearish as I was on cost trends across the industry, even I underestimated how much worse the raw material cost pressures would get, to say nothing of the additional challenges created by labor difficulties (COVID and other factors), logistics difficulties, erratic customer order patterns, and so on.

I believe PPG management is doing a job of controlling (or at least managing) what is in their power to influence, but there are a lot of pressures on the business that they can’t do a lot about. On a brighter note, I do think the top-line progress and pricing power will prove more sustainable long term, leaving PPG in a good position whenever the cost headwinds ease.

These shares are down about 9% since my last update, and others in the coatings space (Akzo (OTCQX:AKZOY), Axalta (AXTA), and Sherwin-Williams (SHW)) have fared pretty similarly. While I do have some concerns that it could be too early for sentiment to turn, and there are still risks that initial FY’22 expectations are too high, the valuation is making this a more tempting idea for a later-stage recovery play.

 

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PPG Industries Plowing Through Ongoing Headwinds, But Valuation Is Getting Interesting

PPG Industries: Hit Hard By Costs, But There Are Multiyear Growth Tailwinds

 

At the moment, PPG Industries (PPG) is an interesting example of how shorter-term concerns and longer-term opportunities can intersect. Nobody really seems to doubt the company’s leverage to recoveries in a range of end-markets, including aero, autos, “general industrial”, and residential construction, nor growth opportunities in areas like packaging and EVs. Likewise, there doesn’t seem to be too much concern that PPG will generate synergies from a host of recent deals. On the other hand, cost inflation now looms much larger as a near-term threat.

While PPG shares sold off after disappointing Q2 results and guidance, they’re still up a bit more than the average industrial over the last six months, so I don’t exactly regret my bullish stance in February. I continue to like the opportunities in front of the company in 2021 and 2022, and although the valuation isn’t dirt cheap, I still like it on balance.

 

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PPG Industries: Hit Hard By Costs, But There Are Multiyear Growth Tailwinds