Barron’s Highlights Axalta

In this weekend’s Barron’s, David Englander highlights the smallest stock on our Buy List, Axalta Coating Systems (AXTA). He lays out the case for a 20% rally from here:

Axalta has a high-quality franchise, with No. 1 or No. 2 positions in various automotive-coating sectors. Notably, it’s the leader in refinishing, a less cyclical business than selling coatings for vehicles that are being assembled. Sales depend on collisions and miles driven, not on production rates.

Refinishing, which accounts for about 40% of revenue, is expected to grow in the next year, a beneficiary of the more than 1.2 billion vehicles on the road, globally. Axalta draws another 40% of its revenue from coatings for new vehicles.

On the basis of enterprise value to estimated Ebitda (earnings before interest, taxes, depreciation, and amortization), Axalta trades at a 10 times multiple, which looks inexpensive compared with coating peers. PPG Industries (PPG), for example, fetches 11 times.

One bull on the stock, analyst Mike Sisson at KeyBanc Capital Markets, thinks a 12 multiple is reasonable. He values Axalta shares at $35. Using the same multiple on 2018 estimates, the stock could be worth more than $38.

Posted by on February 27th, 2017 at 10:23 am

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