Axalta Coating Systems (AXTA), mcap=$5.3bn, price $24.13 vs $28.00

– Industrial coating company under-earning due to auto weakness and raw material inflation.
– #1 or #2 player in its markets.
– Earnings are set to double to $3.0/share by 2025.
– Recovery in the auto OEM industry to pre-covid levels will add $0.5/share to earnings.
– Already taken pricing increases to offset cost inflation (mostly oil-based inputs) will bring EBIT margins back to 15% from depressed 10% levels today.
– Strong industry-wide pricing power, but tends to lag on pricing during inflationary periods.

– Currently sits at 11x PE and 10% FCF yield on 2023 earnings.
– Coating peers $PPG, $SWH and $AKZA trade at 14x-25x multiples.
– $AXTA used to trade at a premium due to the highest margins and fastest organic growth.
– Using 16x on $3.00 ’25 EPS would be $48 stock.

Exp. gain: +70% to $48/share by 2024. IRR of 20%.

Full $AXTA write-up (free guest account required):

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