On Thursday, KeyBanc maintained its Overweight rating and $40.00 price target for Axalta Coating Systems (NYSE:AXTA), following the company's Strategy Day event in Philadelphia.
The event marked the first long-term goal-setting session by Axalta's new management team, where they outlined financial targets, aiming for an EBITDA of over $1,200M by 2026. This goal reflects approximately a 6% compound annual growth rate (CAGR) from the projected record EBITDA of $1,065M for 2024.
The management's 2026 EBITDA target suggests a potential share price of $46, indicating a 29% upside from the current share price, based on an 11x enterprise value to EBITDA (EV/EBITDA) multiple, consistent with KeyBanc's valuation assumptions.
KeyBanc does not perceive this as a peak for the two-year period but views it as a positive outcome that could be surpassed. The firm believes that Axalta's investment appeal hinges on convincing investors of the efficacy of its new growth strategy, which could lead to a higher valuation.
KeyBanc expressed confidence in the achievability of Axalta's earnings target, extending the benefit of the doubt to the new management team. The target is supported by a forecast of $125M in operational improvements, with $25M of that figure announced on Thursday. The firm considers these operational enhancements as the most promising and least risky element of the growth plan.
Additionally, Axalta anticipates $500M in sales growth compared to 2023, which translates to roughly $350M in growth from the 2024 baseline. This sales growth projection includes approximately $125M in revenue from recent acquisitions.
InvestingPro Insights
InvestingPro data and insights offer a quantitative perspective on Axalta Coating Systems' performance and potential. With a market capitalization of $7.87 billion and a P/E ratio of 31.74, Axalta is trading at a higher earnings multiple than some of its peers. This is further emphasized by an adjusted P/E ratio of 23.72 for the last twelve months as of Q1 2024, which indicates a premium valuation in the market. The company's revenue growth over the last twelve months was stable at 4.0%, reflecting a modest upward trajectory in earnings potential.
Two InvestingPro Tips highlight the company's financial health and market sentiment. Axalta has a perfect Piotroski Score of 9, suggesting strong financial positions in several key areas. Additionally, the stock has seen a strong return over the last month, with a 12.78% increase, which might interest momentum investors. Analysts have also revised their earnings upwards for the upcoming period, indicating a bullish outlook on Axalta's future performance.
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