Key Takeaways:
- The 2-Minute Valuation Model values PPG Industries stock at $127 per share in 2 years.
- That’s a potential 27% upside from today’s price of about $100/share.
- PPG’s stock is trading near its lowest P/E valuation multiple in over three years.
- Get accurate financial data on over 100,000 global stocks for free on TIKR >>>
In a market environment characterized by economic uncertainty and inflationary pressures, established industrial companies with strong competitive positions and pricing power offer potentially attractive investment opportunities.
PPG Industries (PPG), a global leader in paints, coatings, and specialty materials, is one such company that appears undervalued based on both historical metrics and future growth projections.
PPG supplies products to construction, consumer products, industrial, and transportation markets worldwide. With a diversified customer base across multiple industries and geographies, PPG stock is positioned to navigate various economic conditions while maintaining its long-term growth trajectory.
With a projected modest but steady annualized return of 13% over the next two years, PPG stock represents a potentially stable investment with reasonable upside in the industrial materials sector.
The stock could easily offer higher returns if the stock returns to a higher valuation multiple.
Here’s our detailed valuation analysis.
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What is the 2-Minute Valuation Model?
Three core factors drive a stock’s long-term value:
- Revenue Growth: How big the business becomes.
- Margins: How much the business earns in profit.
- Multiple: How much investors are willing to pay for a business’s earnings.
Our 2-Minute Valuation Model uses a simple formula to value stocks:
Expected Normalized EPS * Forward P/E ratio = Expected Share Price
Revenue growth and margins drive a company’s long-term normalized earnings per share (EPS), and investors can use a stock’s long-term average P/E multiple to get an idea of how the market values a company.
Why PPG Industries Stock Looks Undervalued
Forecast
Based on the EPS growth chart, PPG is projected to experience steady earnings growth over the next few years.
The company’s normalized EPS is expected to increase from $7.87 in 2024 to $9.39 by 2027, representing a 19.3% growth over this period.
This trajectory suggests that after a period of earnings pressure, PPG is expected to return to growth in 2026, with momentum continuing thereafter. The initial negative growth reflects the challenging economic environment and cost pressures that have impacted the industrial sector broadly.
This earnings growth for PPG stock is likely to be driven by:
- Pricing Power: As a leader in specialty coatings, PPG has demonstrated an ability to pass through cost increases to customers, protecting margins over time.
- Industrial Recovery: Anticipated improvements in key end markets, particularly automotive and aerospace, are expected to drive volume growth in the coming years.
- Operational Efficiency: Ongoing cost reduction initiatives and operational improvements are expected to help recover margins.
- Strategic Acquisitions: PPG has a history of successful bolt-on acquisitions that complement its existing business and create value over time.
- Resilient End Markets: The company’s exposure to maintenance, repair, and overhaul segments provides some stability even during economic downturns.
View PPG’s full analyst estimates >>>
Is PPG Stock a Value Buy?
PPG stock has historically traded at an average forward P/E multiple of 18.2x, as shown in the historical P/E chart. The stock has traded as high as 24.9 times earnings and as low as 11.60 times earnings, with a current P/E ratio today of 12.8x.
The current P/E is significantly below the historical average, sitting near multi-year lows. This compression in the stock’s multiple presents a potential opportunity for investors.
For our valuation, we’ll use a 13x forward P/E multiple, which is slightly above the current level but still below the historical average.
Fair Value of PPG Stock
Using our 2-Minute Valuation Model and applying a conservative approach:
- Conservative 2027 EPS estimate: $9.30
- Conservative forward P/E multiple: 13x
- Projected Dividends over the next 2 years: $6
Expected Normalized EPS ($9.30) * Forward P/E ratio (13x) + Dividends ($6) = Expected Share Price ($127)
The 2-year expected PPG stock price we would get from this valuation is $127/share.
With PPG stock currently trading at around $100, this implies a potential upside of approximately 27% over the next two years or an annualized return of about 12.7%.
Keep in mind, this is just a valuation exercise, and we don’t know for sure what the stock’s price will be in the future.
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What is the Target Price for PPG Stock?
Coincidentally, analysts also have an average price target of around $127 per share for PPG stock, indicating they see a nearly 27% upside for the stock from its current levels.
Analysts too think the industrial stock is undervalued today:
Risks to Consider
While our valuation suggests meaningful upside, investors should be aware of several risks:
- Continued raw material and logistical cost pressures
- Cyclicality in key industrial end markets
- Competition in the coatings industry
- Potential for prolonged economic weakness in Europe and China
- Currency fluctuations impacting international operations
TIKR Takeaway
PPG Industries presents a relatively conservative investment opportunity for investors seeking exposure to the industrial coatings sector.
With PPG stock trading at a significant discount to its historical valuation and analysts projecting a return to growth in the coming years, it appears positioned for moderate upside with a reasonable risk profile.
Our analysis suggests a potential return of 18.5% over the next two years, which translates to a respectable 12.7% annualized return. For income-oriented investors, PPG also offers a dividend yield of 2.7% that enhances total return potential.
Is PPG Industries stock a buy over the next 24 months? Use TIKR to check the stock’s analyst price targets and growth forecasts to see if the stock is undervalued today.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
