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PPG's 2021 Off to a Blazing Start as Demand Surges; Raising Fair Value Estimate to $96 From $87 PPG's 2021 Off to a Blazing Start as Demand Surges; Raising Fair Value Estimate to $96 From $87 Charles Gross Equity Analyst Analyst Note | by Charles Gross Updated Apr 16, 2021 PPG began 2021 on a high note as the global economic backdrop brightens. Fiscal stimulus, particularly in the U.S., sent people shopping during the first quarter. From housing to automotive end markets, demand is frothy. This robust economic backdrop supported a 15% climb in sales to $3.9 billion and 39% growth in segment income to $631 million. Given that 2021 is looking brighter than we had previously expected, we have materially increased our near-term forecasts. In combination with an improved pension funded status and time value of money effects, this leads us to raise our fair value estimate to $96 per share, up from $87. Our narrow moat rating is unchanged. Despite our fair value increase, shares still trade nearly 50% above our estimate. We view them as significantly overpriced at current levels. The performance coatings segment added about 5% in organic sales volumes, with additional benefits from currency, acquisitions, and modest price increases. Normalizing post-COVID-19 behavior and the hot U.S. housing market were major segment drivers during the quarter. A combination of operating leverage, improved selling prices, and lower costs widened margins substantially. Segment operating income rose over 40% to $386 million during the quarter. We expect these tailwinds to continue during 2021, pointing to substantial improvement relative to 2020. Industrial coatings results were no slouch, either. Sales jumped 14%, on a 10% volume increase versus the prior year. Management did highlight the ongoing negative impact of microchip shortages, but even so, 2021 should be a strong year for the segment. The combination of low rates and fiscal stimulus has spurred a rebound in demand for finished goods, driving increased demand for vehicles and manufacturing equipment of all kinds. All this bodes well for increased sales of the firm's requisite coatings. |
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