By Michael Elkins
RBC Capital upgraded Axalta Coating Systems (NYSE:AXTA) to an Outperform rating (from Sector Perform) and raised the price target on the stock to $36.00 (from $30.00) on the paint company’s EBIT recovery and deleveraging efforts.
AXTA’s segment annual EBIT has declined by over $100 million due to lagging price and 40%+ cost inflation. Analysts expect the company’s new CEO, Chris Villavarayan, to emphasize “commercial courage” through pricing actions (and moderating cost inflation) to recapture most and potentially more than $100M in segment EBIT over 2023-24.
Looking ahead, the analysts expect AXTA to follow a similar cash use cadence throughout FY’23 as to what the company did in 4Q22, which was ~$45M in gross deduction with no share repurchases, beyond offsetting dilution. RBC Capital views AXTA’s focus on reducing gross debt as another step towards fixing internal profitability and also setting up FY’24 for capital return to shareholders and add potential for M&A.
The analysts wrote in a note, “Axalta has achieved $200M in annual cost cuts of $100M in Europe and another $100M in the remaining geographies via the “Axalta Way” Program. It expects to realize additional $100M+ in price/cost recovery in 2023 and greater amounts in 2024 and beyond. In addition, AXTA continues to be focused on aligning its cost structure with demand.”
Shares of AXTA are up 0.64% in mid-day trading on Friday.