On Thursday, BMO Capital Markets maintained its positive stance on Axalta Coating Systems (NYSE:AXTA), increasing the shares price target to $45.00 from the previous $42.00 while keeping an Outperform rating.
The firm noted that Axalta's stock is well-positioned for significant growth towards the new target price. This optimism is backed by management's initiatives to enhance margins through better procurement strategies and the initiation of SG&A efficiency measures. These efforts, along with expected pricing advantages, market share gains, and a recovery in some of Axalta's currently underperforming end markets, are anticipated to fuel double-digit earnings growth through 2026.
Furthermore, BMO Capital Markets highlighted the potential for increased Free Cash Flow (FCF), which could contribute to Axalta's new $700 million buyback program, thanks to the company's improved leverage situation. The firm also sees considerable potential for an expansion in the company's multiple, given Axalta's current valuation, which is considered modest compared to its peers.
The analyst's commentary underscored the combination of internal financial management and market factors that are expected to support Axalta's performance. These include ongoing cost-efficiency measures and the prospect of an uptick in certain market segments that have been lagging.
Axalta's strategic financial management, particularly its ability to generate growing free cash flow, is seen as a key driver for the company's ability to execute its substantial share buyback program. This financial maneuver is expected to be supported by the company's improved leverage, which provides more flexibility for such shareholder-friendly activities.
The firm's analysis suggests that Axalta's stock has not yet fully realized its value potential when compared to industry counterparts. This leaves room for growth in the company's stock valuation as the aforementioned strategies and market conditions unfold.
InvestingPro Insights
Recent analysis from InvestingPro complements BMO Capital Markets' positive outlook on Axalta Coating Systems (NYSE:AXTA). With a strong financial standing and market performance, Axalta boasts a perfect Piotroski Score of 9, indicating a healthy financial condition. In addition, analysts have revised their earnings upwards for the upcoming period, showing confidence in the company's growth prospects. Notably, Axalta's stock has seen a significant return over the last week, reflecting investor optimism.
InvestingPro Data underscores this sentiment, revealing a market capitalization of $7.55 billion and a solid revenue growth of 4.0% over the last twelve months as of Q1 2024. The company's operating income margin stands at a robust 11.97%, and its gross profit margin at 32.07%, emphasizing the effectiveness of its cost management strategies. Furthermore, Axalta is trading near its 52-week high, with the price at 97.95% of this peak, suggesting strong market confidence.
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