We recently came across a bullish thesis on Axalta Coating Systems Ltd. (AXTA) on ValueInvestorsClub. In this article we will summarize the bulls’ thesis on AXTA. AXTA shares were trading at closing price of $31.56 on April 16th when this thesis was published. AXTA shares gained around 10% since then.
Axalta Coating Systems Ltd., through its subsidiaries, manufactures, markets, and distributes high-performance coatings systems in North America, Europe, the Middle East, Africa, the Asia Pacific, and Latin America. The company operates through two segments, Performance Coatings and Mobility Coatings.
A worker in a paint manufacturing plant wearing a protective suit and mask.
Surprisingly bigger earnings than expected
Axalta Coating Systems (AXTA) reported $1.35 billion in revenue for the quarter ended June 2024, representing a year-over-year increase of 4.4%. EPS of $0.57 for the same period compares to $0.35 a year ago, represents an earnings surprise of 11.76%. A quarter ago, it was expected that this high-performance coating system maker would post earnings of $0.40 per share when it actually produced earnings of $0.48, delivering a surprise of 20%. Over the last four quarters, the company has surpassed consensus EPS estimates three times.
New partnership signed
Recently, the company announced a partnership with CESVIMAP R&D Centre, a leader in research and development for the collision repair industry. Through this partnership, Axalta’s refinish customers will have access to CESVIMAP’s Move2Green sustainability program which offers an online, self-assessment questionnaire to evaluate the current environmental impact of bodyshop.
The partnership will initially launch in the Europe, Middle East and Africa (EMEA) region to Axalta customers in the United Kingdom, Ireland, and Benelux with expansion plans for additional countries in the near future.
Bullish investors think AXTA’s shares are currently undervalued and should trade at approximately $47 per share, or a 10x multiple of estimated 2026 EBITDA of $1.245 billion. This represents a potential upside of around 50% compared to the current price. They expect that AXTA’s 2024 EBITDA is likely to surpass both guidance and market expectations by a high single-digit percentage. Based on this, their 2024 EBITDA estimate provides a solid foundation for projecting future growth of at least a mid-single-digit percentage annually. Despite this favorable outlook, AXTA continues to trade at a significant discount to its peers in the coatings industry. Its current multiple of 9.3x 2024 EBITDA is lower than PPG (11.5x), RPM (13.5x), AKZO (9.8x), and SHW (19.6x). Moreover, AXTA’s valuation is below its historical average multiple of 10.2x over the past seven years.
AXTA is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 43 hedge fund portfolios held AXTA at the end of the first quarter which was 47 in the previous quarter. While we acknowledge the potential of AXTA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as AXTA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey
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