By Jeff Sanford
Toronto, Ontario -- October 26, 2015 -- An interesting investment thesis on the popular financial website zerohedge.com paints automotive finish manufacturer Axalta as “an excellent long-term [investment] hold.”
The author of the piece can’t say enough nice things about the investment potential of Axalta. According to the author the “company’s stock is positioned for outperformance … this is a story that is impossible not to like.” Even Warren Buffett reportedly likes the company.
The company was spun out of DuPont in 2013 and now trades as a standalone company on the New York Stock Exchange. As it is, macro factors like concerns about drooping global GDP concerns and a slowdown in China and India have weighed on the company.
The thinking is that the automotive sector will suffer as the US dollar will rises as investors seek safety in American assets. This will make exports from auto companies more expensive in the global market. A faltering Chinese auto market would also negatively affect sales. So no wonder Axalta shares have swooned a mighty 20 percent since a rally in the early summer. But the swoon seems to be over, according to the zerohedge.com analyst.
One buyer rumoured to be acquiring Axalta stock on any dips is the Oracle of Omaha himself, Warren Buffett. When his holding company, Berkshire Hathaway, last reported financials it came to light that the company now owns almost 9 percent of Axalta. If Warren Buffett holds that much of a company you know they’re doing something right. As it is, analysts are projecting massive earnings growth when the company reports its third quarter numbers in the coming weeks.
The analyst consensus for the upcoming third quarter results is that Axalta will report earnings growth of 5.2 percent for full-year 2015 and will predict 8 percent for full-year 2016. Those are great numbers. If they appear in the actual results when they are released, investors will take notice.
As well, the analyst points out that the worries over a faltering Chinese economy are overdone, and noting that Axalta is a relatively small company. Its business in China and Indian is “immature” and so it still has room to grow even if those economies slow. Earnings growth is expected to come from multi-year savings and efficiency measures being implemented.
The analyst also points to two corporate programs at Axalta, "Fit-For Growth" and "The Axalta Way," that are finding success. As the worries about a China/India economic slowdown prove to be “greatly exaggerated … Axalta is an excellent long-term play that I believe will show better-than-expected results at Q3 reporting,” according to the analyst.
“There's a reason that Berkshire Hathaway acquired such a large stake in the company so early in its maturation,” he writes. “The future looks bright at Axalta; consider adding to a position or initiating a position for a long-term hold … Continue to [invest] in this name.”