Institutions Cap Gains In PPG Industries
Shares of PPG Industries (NYSE: PPG) rocketed higher in the wake of the pandemic as global demand and curtailed productions boosted supply chain needs throughout the system. The sudden increase in demand for both consumer and commercial paint/coating solutions drove revenue gains to record levels and the demand is still strong. The caveat in all this is that supply chain issues and labor costs are cutting into results on both the top and bottom lines and have earnings trending below the pre-pandemic levels. While we like this company, the industry, and the outlook the near-term headwinds are too great for the market to overcome and we think it is heading lower.
One reason for this is the institutions. The data from Insidertrades.com shows the institutions still have a lot of confidence in the company and the institutional activity has been net bullish for the last year but there was a noticeable change in trend starting with the previous quarter. Institutional buying was slacking off during the Q1 to Q3 period of 2021 even while selling was picking up and then, in Q4, selling outpaced buying by roughly 2:1 and the trend is present in the first few weeks of 2022 as well. With the institutional ownership sitting near 80% there is quite a lot of fuel to drive this market lower.
The Analysts Don’t Like The Shade Of PPG’s Q4 Results
The analyst did not like what they saw in PPG’s Q4 results including the 30% increase in raw material costs and supply disruptions that are so hurting the results. While the consensus rating is still a weak Buy that may change soon. There have been at least four major sell-side commentaries out since the report was released and none of them are “bullish”. Of the four, we have one downgrade to Equal Weight from Overweight and three price target downgrades.
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Of those, only one has a rating on the stock and that is a buy for whatever it’s worth. The three downgrades are all in the range of $180 to $182 compared to the consensus price target of $177 which assumes about 15% of upside for the stock. The consensus target is virtually unchanged over the last 90 days and edging lower after rising more than 30% versus last year.
PPG Industries didn’t have a bad quarter but the results were severely hampered by inflation, material availability, freight space, and COVID-related work outages. The company reports as many as 40% of its workforce out sick on a plant-to-plant basis and this may continue for the foreseeable future. Regardless, the $4.19 billion in revenue is a quarterly record driven by a 4% organic increase coupled with an 8% increase in pricing.
The pricing increase offset some of the cost pressures but not all leaving income down on a YOY level and below pre-pandemic levels. The adjusted EPS of $1.26 beat by $0.07 but are down from last year’s $1.59 and the outlook for 2022 is not better. Turning to the guidance, this is the news that really has the market moving lower. The company is guiding 2022 adjusted EPS in a range of $1.02 to $1.20 versus the consensus of $1.52 and there is some downside risk at least right now.
The Technical Outlook: PPG Industries May Hit $140
Shares of PPG Industries are moving lower off of a double-top formation that was created during 2021. This pattern is pushing the stock down to the baseline just above the $140 level but it looks like this might be a strong level. While there are near-term headwinds pushing the stock lower, the fundamental conditions are still bullish and the headwinds will subside (fingers crosses). Assuming that headwinds begin to dissipate in the first half of the year, we expect to see PPG move lower and test/establish a firm support level before moving sideways in consolidation. Later in the year, it may move higher again if revenue growth is sustained and margins recover.
Companies in This Article:
|Company||Current Price||Price Change||Dividend Yield||P/E Ratio||Consensus Rating||Consensus Price Target|
|PPG Industries (PPG)||$155.03||+0.2%||1.52%||26.06||Buy||$178.44|