On Wednesday, BMO Capital Markets updated its outlook on Axalta Coating Systems (NYSE:AXTA), raising the price target to $46.00 from $45.00 while retaining an Outperform rating on the stock. The firm's analysis indicates that Axalta is outperforming its end markets, fueled by effective cost and efficiency measures, new business wins, and a strong free cash flow that is contributing to an anticipated 35-40% or more growth in earnings per share (EPS).
The analyst from BMO Capital Markets highlighted that Axalta has significantly more potential to enhance its performance through its ongoing Transformative & Network (LON:NETW) Optimization initiatives. These efforts, coupled with a heightened emphasis on increasing revenue and having already achieved long-term margin goals, are expected to sustain robust double-digit EPS growth and record return on capital employed (ROCE) in the coming years.
The report suggests that Axalta's strategic measures are likely to continue to bear fruit, leading to a steady rise in the stock's value toward the mid to upper $40s. The analyst reaffirmed the Outperform rating, underscoring the company's position as a top small to mid-cap (SMID) investment choice.
Axalta's commitment to its Transformative & Network Optimization program appears to be a key driver in the company's ability to exceed market expectations. This initiative is designed to streamline operations and reduce costs, which in turn contributes to the firm's robust financial performance.
The BMO Capital Markets report concludes with a positive outlook for Axalta, projecting that the combination of earnings growth and modest multiple expansion will propel the stock forward. This assessment reaffirms the company's status as a leading choice for investors looking for growth opportunities in the SMID cap space.
In other recent news, Axalta Coating Systems reported a robust third quarter, surpassing analyst estimates. The global coatings company posted adjusted earnings per share of $0.59, which exceeded the anticipated $0.51.
Alongside this, the firm's revenue for the quarter matched consensus expectations at $1.32 billion. The company's third quarter net sales increased 0.8% year-over-year to a record $1.32 billion, and net income saw a significant rise of 40% to $102 million.
Additionally, Axalta's Performance Coatings segment saw a 2% year-over-year growth in net sales to $877 million, largely driven by the CoverFlexx acquisition and new body shop wins. In contrast, the Mobility Coatings segment net sales decreased 2% to $443 million.
For the full year 2024, Axalta expects revenue of approximately $5.275 billion. The company also repurchased over 1.4 million common shares for a total consideration of $50 million during the third quarter.
InvestingPro Insights
To complement BMO Capital Markets' bullish outlook on Axalta Coating Systems (NYSE:AXTA), recent data from InvestingPro provides additional context to the company's financial performance and market position.
Axalta's market capitalization stands at $8.39 billion, reflecting its significant presence in the coatings industry. The company's revenue for the last twelve months as of Q2 2024 reached $5.25 billion, with a modest growth of 3.91%. This aligns with BMO's observation of Axalta outperforming its end markets.
InvestingPro Tips highlight that Axalta has been aggressively buying back shares, which often signals management's confidence in the company's future prospects. This strategy may contribute to the anticipated 35-40% EPS growth mentioned in the BMO report. Additionally, Axalta is trading at a low P/E ratio relative to its near-term earnings growth, with a PEG ratio of 0.91, suggesting potential undervaluation.
The company's profitability is underscored by its operating income margin of 13.84% and an EBITDA of $1 billion for the last twelve months as of Q2 2024. These figures support BMO's expectations of sustained double-digit EPS growth and record ROCE.
Investors seeking more comprehensive analysis can access additional InvestingPro Tips, with 7 more tips available for Axalta on the platform.
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