By Jeff Sanford
Toronto, Ontario -- July 9, 2015 -- Investors are feeling optimistic about the direction of the industry and associated businesses. Or so it seems. A perfect example of the new optimism is the many positive analyst rankings attached to the stock of paint manufacturer Axalta.
The company is benefiting from lower oil prices. This reduces the costs of raw materials. The company has also been making its North American and European products more available in China. So no wonder investors like the story. The company’s stock, trading at just $20 a year ago, is now trading over $30 a share as investors soak up the good news around the company.
An early-June investor presentation outlined the basics. The company is generating net sales of $4.3 billion. There are almost 13,000 employees now. Looking ahead, the outlook for the coatings industry is for growth of 6 percent out to 2017. That is, the company is enjoying a "strong underlying market."
In the years ahead the company is planning to globalize its existing products to reach underserved markets such as China. As the rapid growth in the middle-class in developing economies drives growth of the auto industry, Axalta is in line to profit. According to the investor presentation there is are "significant emerging markets growth opportunity across Axalta's End-Markets."
Here in North America the company is driving "market share gains by partnering with key industry consolidators." The company is also undertaking a plan to shave $100 million in operating costs out of its operations in Europe. There the company is restructuring wages and benefits while rationalizing manufacturing and logistics and investing in automation.
Investors also like the fact that its finances are in order. Earnings have been growing strongly, while debt leverage has decreased. All in, bankers expect "strong performance with future upside...[the outlook is] positive for solid long-term growth."
As a result analysts have been upgrading the stock this spring. Citigroup recently reiterated a "buy" rating on shares. Analysts at Barclays have raised their price target on Axalta shares to $36, suggesting there is some growth left in the stock. Robert W. Baird analysts have an "outperform” rating and a $38 price target on the stock. Deutsche Bank recently raised its price target on shares from $32 to $36.
With the stock trading today around $32, analysts think there is some upside yet in the stock.