Here's Why You Should Hold Onto PPG Industries (PPG) For Now

PPG Industries Inc. PPG is poised to gain from its cost management initiatives, pricing actions and strategic acquisitions amid headwinds including soft industrial demand.

Shares of the paints giant are up 23.7% so far this year, outperforming its industry’s 17.2% decline.

 

Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.

What’s Favoring the Stock?

PPG Industries is aggressively managing costs and is also implementing appropriate pricing actions. It remains focused on improving its cost structure and recovering margins through price increases amid an inflationary environment.

PPG Industries’ cost savings programs delivered around $20 million in savings in the third quarter of 2019. The company expects to achieve another $20 million in cost savings in the fourth quarter. PPG Industries is implementing a new cost-savings program, which targets full-year run-rate savings of roughly $125 million once completed.

The company is also taking steps to grow business inorganically through strategic acquisitions. The company, earlier this year, completed the acquisitions of Whitford Worldwide and Hemmelrath. It expects these two along with the SEM Products acquisition to add around $400 million in annualized revenues. PPG Industries also completed the buyout of specialty materials maker, Dexmet Corporation, in the third quarter.

PPG Industries also remains committed in its cash deployment with a focus on shareholder value creation over the long term. The company, in July 2019, raised its quarterly dividend by 6% to 51 cents per share.

A Few Headwinds

PPG Industries faces challenges from sluggish global industrial activities. The company saw weakening industrial production growth across all regions in the first half of 2019 and the softness continued in the third quarter. Headwinds from soft industrial demand are likely to continue to negatively impact its volumes. PPG Industries expects global economic growth to remain soft in the fourth quarter and impact several end-use markets.

Moreover, the company faces some headwind from unfavorable currency translation. Currency swings reduced its sales by around 2% or around $80 million in the third quarter. Moreover, earnings were negatively affected by roughly $10 million or 4 cents per share due to unfavorable foreign currency translation. The company expects unfavorable currency translation impact on sales to persist at a similar rate in the fourth quarter.

PPG Industries, Inc. Price and Consensus

 

PPG Industries, Inc. Price and Consensus

PPG Industries, Inc. price-consensus-chart | PPG Industries, Inc. Quote

Stocks to Consider

Better-ranked stocks worth considering in the basic materials space include Agnico Eagle Mines Limited AEM, Kirkland Lake Gold Ltd. KL and Franco-Nevada Corporation FNV, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Agnico Eagle has a projected earnings growth rate of 168.6% for the current year. The company’s shares have rallied roughly 63% in a year’s time.

Kirkland Lake Gold has projected earnings growth rate of 96.3% for the current year. The company’s shares have surged around 152% in a year’s time.

Franco-Nevada has estimated earnings growth rate of 46.2% for the current year. The company’s shares have shot up roughly 40% in a year’s time.

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