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PPG Industries is a global supplier and distributor of paints, coatings, chemicals, and specialty materials. The company offers sealants and industrial coatings used in a variety of applications such as packaging material, aircraft and marine equipment, and automotive parts.
Headquartered in Pittsburgh, PPG manufactures adhesives and metal pretreatments for appliances, agricultural and construction equipment, kitchenware, and consumer electronics. The company also provides advanced technologies for pavement marking for government, commercial infrastructure, and maintenance contractors.
PPG faces several challenges including reduced demand for its products, particularly in the United States and Europe. The ongoing Russia-Ukraine conflict and weak consumer confidence are negatively impacting demand in Europe. Weaker industrial production is weighing on sales and volumes. Lower automotive build rates are impacting the company’s Industrial Coatings segment.
The company’s high debt level is also a concern. As of the end of last year, PPG’s long-term debt was valued at roughly $5.8 billion. A high debt level reduces its financial flexibility.
The Zacks Rundown
A Zacks Rank #5 (Strong Sell) stock, PPG Industries PPG is a component of the Zacks Chemical - Specialty industry group, which currently ranks in the bottom 19% out of approximately 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months, just as it has over the past year.
Stocks in the bottom tiers of industries can often be intriguing short candidates. While individual stocks have the ability to outperform even when they’re part of a lagging industry, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.
Along with many other specialty chemical stocks, PPG shares have been underperforming over the past year while the general market returned to new heights. The stock is hitting a series of lower lows and represents a compelling short opportunity as we head further into the new year.
Recent Earnings Misses & Deteriorating Outlook
PPG has fallen short of earnings estimates in two of the past three quarters. Just last month, the company reported fourth-quarter earnings of $1.61 per share, missing the Zacks Consensus Estimate by -2.42%. Revenues of $3.73 billion fell 14.3% year-over-year and also fell well short of analysts’ projections.
The paint and coatings provider has posted a negative trailing four-quarter earnings surprise of -0.64%. Consistently falling short of earnings estimates is a recipe for underperformance, and PPG is no exception.