By Jeff Sanford
Toronto, Ontario -- December 12, 2016 -- Tuesday Ticker looks at the automotive claims ecosystem from the business perspective, rounding up the most important news from some of the industry’s largest companies. This week we look at the latest results from the big paint manufacturers, how OEM stocks have risen since the news of Trump’s election, big gains for NAPA’s parent company and much, much more!
- The big paint manufacturers had a good week. In particular, PPG Industries gained a very solid 5 percent on the week, hitting $99.29 by the end of the week, though the stock was trading a bit lower Monday. BlackRock Fund Advisors and TIAA CREF Trust Co. both upped their stakes in PPG.
PPG announced that the company will engage in a broad restructuring of the company's operations, expected to be complete by the first quarter of 2018. The company will focus on saving money in, “... regions and end-use markets with the weakest business conditions to reduce operational, functional and administrative costs.” Once the restructuring is complete the company expects to generate, “...$120−$130 million in annual savings, with $40−$50 million of savings expected to be realized in 2017,” according to a press release.
Will the restructuring knock down the price of paint? We'll see. Overall the global paint sector is expected to do well. A recently released research report covering the global industrial coatings market finds that the big players (AkzoNobel, Axalta, BASF, PPG Industries and Sherwin-Williams) will enjoy an annual compound growth rate of about 5.8 percent between 2016-2020.
- A headline on Market Realist notes that, “Axalta’s stock price spikes,” as it plans a rapid global expansion. According to the story Axalta is working to increase market share in Mexico and Central America. Axalta also announced it would expand production in its facility in Landshut, Germany. According to the report, “Both these actions suggest that Axalta aims to capture a greater market share and could be thinking of making all of its products available in all geographical locations, which could lead to more market share and revenue growth.” Axalta stock closed at $27.13 on Friday, a remarkable increase of 8.3 percent on the week. Frisco Fastball’s report on Axalta notes that, the week previous, the company, “...registered an unusually high” volume in the number of 'call contracts' related to the stock. These so-called options give investors the right to buy shares of the company in question at a certain price at a certain point in the future. According to the report the big interest in the call options suggests that a professional trader is making a “serious” bet that Axalta shares are going to rise through to January of 2017. An investment product, the iShares U.S. Basic Materials ETF, holds the stock of various materials producers (including Axalta) and was up 3.3 percent for the week.
- Stock in Sherwin-Williams also did well last week, rising 2.2 percent. In March of this year Sherwin-Williams announced it is acquiring Valspar, a deal expected to close in the first quarter of 2017. SHW is offering $113 per Valspar share. But shares in Valspar are currently trading at just $102.62. That's odd, as the price of Valspar shares would normally be expected to rise to a price much closer to $113 a share considering anyone buying the shares at $102 can sell them to SHW for $113. What's going on?
The one potential stumbling block to the acquisition may come from the US government, as it’s possible that Valspar will be asked to sell off some divisions before regulatory approval is granted to the sale. If the divisions in question do have to be sold, the value of Valspar shares fall to just $105 per share (based on future revenues), which explains why shares in the company are trading just a bit above $102. Last week it was reported that the investment arm of the Canadian Pension Plan, the Canada Pension Plan Investment Board (CPPIB), substantially increased its stake in Sherwin-Williams.
- Another big gainer last week was the parent company of NAPA, Genuine Parts Company (GPC), which packed on another 3 percent in value on Wednesday alone. BlackRock has been a buyer of the stock, increasing its stake in GPC by 1.2 percent during the third quarter according to Securities and Exchange Commission filings. Another buyer is Van ECK Associates, which has also been buying up another parts company traded on the New York Stock Exchange, Advance Auto Parts. Van ECK increased its stake in APP by almost 40 percent in the second quarter of this year.
- Last Thursday dealership conglomerate AutoCanada (ACQ) enjoyed a huge gain of 11.29 percent, with shares rising to $23.16. The volume of shares of ACQ trading that day doubled from about 103,000 to more than 200,000. Last week several stories noted that the downturn in the Alberta economy seems to be waning as the price of oil rises. Could someone be betting that ACQ will do well as a result? The majority of AutoCanada's assets are in the west.
- Shares in LKQ have gained 6.86 percent in the last month and 15.73 percent since the start of this year. Investors like the growth story at the company. It was reported in this space last week that the company continues to expand into Europe.
Related Market Notes
- One company in the auto sector that seems to be enjoying the Trump stock boom is Fiat Chrysler. Over the fourth quarter of this year the stock has increased in price by an impressive 31.4 percent. Investors like the fact that the company doubled earnings per share this past quarter as compared to the same quarter last year. Another report notes that Fiat enjoyed a large decline in 'short interest' in the stock. Without getting into the mechanics, investors that go short on a stock are betting the price will fall. According to stock exchange data outstanding short positions in Fiat stock declined by 5.1 percent.
- OEM stocks in general have done well in the wake of Trump's election victory. GM and Ford gained 6.4 percent and 7.6 percent respectively last week. It seems investors are responding well to the announcement by Trump that Scott Pruitt will be named head of the Environmental Protection Agency. Many seem to be betting that Pruitt will throttle back Corporate Average Fuel Economy (CAFE) standards once in office.
- It was also reported last week that a clutch of dealership stocks also did well. CarMax Inc. (NYSE: KMX), Penske Automotive Group Inc. (NYSE: PAG) and Car-Mart Inc. (NASDAQ: CRMT) were all gainers for the week. Shares in Car-Mart are up about 65 percent year to date. It seems investors have shrugged off news that car sales may have peaked, and are assuming sales will remain high into the future.
- Also doing well last week was AutoZone (AZO), which enjoyed a bump in the stock price Wednesday following an upgrade from major investment bank JPMorgan. AutoZone is primarily known as a seller of auto parts in the retail market but the company has a commercial division that sells to collision repair centres. One analyst, in upping their price target from $808 to $910 per share, noted that, “Looking to 2017, we continue to favor names that could see accelerating sales trends … AZO could also benefit from a pro-growth Federal government with a primarily domestic business (90 percent of revenues) where miles driven correlates to GDP.” The stock has gained 8.5 percent so far in 2016. It was reported in this space last week that massive Quebec public sector pension fund, the Caisse de Depot et Placement (The Caisse), bought up shares in AutoZone recently. The Caisse, of course, is helping to finance the Fix Auto expansion effort (and has a seat on the board through the Caisse's fund that targets mid-sized companies).