PPG: Depressed Market Value Will Recover As Cyclical Pressures Fade

Narrative Update: Analyst Price Target and Rationale for PPG Industries

Analysts have modestly reduced their average price target for PPG Industries by $2.80 to $121.20. This change reflects continued concerns over weak macro conditions and recent price target adjustments, while maintaining a generally constructive outlook on the company's underlying fundamentals.

Analyst Commentary

Recent analyst reports present a mix of optimism and caution regarding PPG Industries, reflecting both near-term challenges and potential for longer-term improvement.

Bullish Takeaways

Some analysts have upgraded their outlook and highlight that PPG’s market valuation may be depressed relative to its actual business fundamentals.
Views suggest that current earnings weakness is tied to cyclical factors in the market rather than lasting structural problems in the company's underlying demand.
There is an expectation that PPG’s earnings growth could accelerate in 2026, which could support potential upside for the stock if macro trends improve.
The constructive perspective is maintained as long as the company’s fundamentals remain resilient, and there may be room for valuation expansion once cyclical pressures subside.

Bearish Takeaways

Several price target reductions highlight caution about macroeconomic conditions, with continued weakness in both commodity and industrial end markets.
Inconsistent industrial demand and recent slippages in business segments have led analysts to temper expectations for the remainder of the year.
Some analysts no longer expect seasonal strength in the fourth quarter, which suggests a challenging operating environment into year-end.
Valuation concerns persist among cautious analysts, who note that lowered earnings guidance could weigh on the company’s near-term growth and share price targets.

What's in the News

PPG Industries launched a new ultrafiltration (UF) antifouling membrane for industrial water purification and treatment. It is engineered to handle challenging contaminants and extend membrane service life without intentionally-added PFAS. (Key Developments)
The company completed a major share buyback, repurchasing 6,002,071 shares for $690 million under its previously announced program. (Key Developments)
PPG introduced PPG ENVIROCRON Extreme Protection Edge Plus powder coating, which delivers advanced edge protection and corrosion resistance with efficient one-coat application. (Key Developments)
PPG announced the global release of PPG MIX'N'SHAKE automated stirring technology to improve paint consistency, reduce waste, and save time in automotive refinish applications. (Key Developments)
Solera and PPG entered a strategic partnership to integrate PPG's automotive refinish coatings into Solera's Sustainable Estimatics platform. This partnership enables more accurate carbon emissions tracking for repair shops. (Key Developments)

Valuation Changes

Fair Value Estimate: Decreased modestly from $124.00 to $121.20, reflecting a more cautious outlook.
Discount Rate: Lowered from 8.02% to 7.90%, indicating slightly reduced risk assumptions in the valuation model.
Revenue Growth Forecast: Increased slightly from 2.79% to 2.98%, which signals improved expectations for top-line expansion.
Net Profit Margin: Marginally higher, moving from 11.44% to 11.46%, which suggests minor improvements in anticipated profitability.
Future P/E Ratio: Declined from 16.65x to 15.75x, which implies a lower valuation multiple applied to expected future earnings.

Strategic investments in innovation and high demand in key segments are likely to boost PPG's revenue and earnings growth.
Efficiency improvements and cost controls are expected to enhance margins, especially in Europe and Mexico.
Unfavorable currency trends, lower automotive production, and geopolitical issues could negatively impact PPG's revenue and profitability across multiple segments.

Catalysts

About PPG Industries

Manufactures and distributes paints, coatings, and specialty materials in the United States, Canada, the Asia Pacific, Latin America, Europe, the Middle East, and Africa.What are the underlying business or industry changes driving this perspective?

PPG is beginning to realize the benefits of its enterprise growth strategy started in 2023, with a focus on organic sales growth through strategic investments in innovation, which is expected to impact revenue positively.
There is strong performance and expected continued demand in the Aerospace and Protective & Marine Coatings segments, driven by technology advantage products and share gains, which is likely to enhance revenue and earnings.
PPG is implementing efficiency improvements and cost controls, particularly in Europe and Mexico, which should lead to margin improvement and thus potentially better net margins.
They anticipate significant share gains, particularly in the Industrial Coatings segment with automotive OEMs, expected to drive revenue growth above industry levels, starting in the third quarter.
PPG is executing growth-related investments to support demand in Performance Coatings, including in Refinish through digital productivity tools, expected to improve revenue and earnings as volume grows.

PPG Industries Earnings and Revenue Growth

PPG Industries Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming PPG Industries's revenue will grow by 2.7% annually over the next 3 years.
Analysts assume that profit margins will increase from 8.1% today to 11.6% in 3 years time.
Analysts expect earnings to reach $2.0 billion (and earnings per share of $9.2) by about September 2028, up from $1.3 billion today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.9x on those 2028 earnings, down from 19.4x today. This future PE is lower than the current PE for the US Chemicals industry at 25.9x.
Analysts expect the number of shares outstanding to decline by 2.72% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 7.95%, as per the Simply Wall St company report.

PPG Industries Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Unfavorable foreign currency translation, particularly affecting the Global Architectural Coatings segment, could continue to impact PPG's revenue and profitability if currency trends persist.
The automotive industry's lower production levels, especially in the U.S. and Europe, may negatively affect PPG's Industrial Coatings segment's sales and profitability.
Geopolitical uncertainty and paused project spending in Mexico could hinder growth in the Architectural Coatings segment, potentially affecting revenue and margins if prolonged.
Industrial Coatings faces downward pressure from a 1% decline in selling prices due to index-based customer contracts, which could impact revenue and net margins.
Regional inflation, particularly from a weaker peso impacting Latin American operations, combined with lower sales volumes, may further erode segment EBITDA margins despite cost control measures.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $127.35 for PPG Industries based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $145.0, and the most bearish reporting a price target of just $112.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $16.9 billion, earnings will come to $2.0 billion, and it would be trading on a PE ratio of 16.9x, assuming you use a discount rate of 7.9%.
Given the current share price of $109.38, the analyst price target of $127.35 is 14.1% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Analysts Adjust PPG Industries Price Target Amid Mixed Outlook and Modest Valuation Changes