KeyBanc analyst Aleksey Yefremov initiated coverage of PPG Industries, IncPPG with an Overweight rating and a $127 price target.
The central premise of Yefremov thesis is that a sharp decline in costs is likely coming in 1H23, helping to offset cyclical volume pressure.
Spot prices of critical raw materials have already declined 20%-plus since Q2, and he expected PPG to see the benefits with a two-quarter lag.
The analyst sees an opportunity for price and cost normalization over the next three to four quarters and believes the improvement will be a strong enough benefit to outweigh the 6%-8% volume declines that PPG could see in 2023.
Yefremov expected that auto OEM, aerospace, and refinish have not fully recovered to 2019 levels will mitigate volume pressure.
Indeed, PPG’s volumes are still 10% off the 2019 baseline.
Given the slowing macro environment, Yefremov was also cautious about architectural and industrial coatings volumes.
The analyst expected significant challenges from EMEA.
Yefremov viewed the current EV/EBITDA multiple as moderately attractive, given the potential for future recovery in volumes and margins. He estimated PPG trades at normalized EV/EBITDA.
Price Action: PPG shares traded higher by 2.70% at $113.31 on the last check Monday.
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