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.
The company has been on the receiving end of negative earnings estimate revisions as of late. Looking at the current quarter, analysts have slashed estimates by a whopping -14.51% in the past 60 days. The Q1 Zacks Consensus EPS Estimate is now $1.65/share, reflecting negative growth of -11.3% relative to the year-ago period.
Image Source: Zacks Investment Research
Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.
Technical Outlook
As illustrated below, PPG stock is in a sustained downtrend. Notice how the stock has made a series of lower lows, widely underperforming the major indices. Also note that shares are trading below downward-sloping 50-day (blue line) and 200-day (red line) moving averages – another good sign for the bears.
Image Source: StockCharts
PPG stock has experienced what is known as a “death cross,” whereby the stock’s 50-day moving average crosses below its 200-day moving average. Shares would have to make an outsized move to the upside and show increasing earnings estimate revisions to warrant taking any long positions. The stock has fallen nearly 18% over the past year alone.
Final Thoughts
A deteriorating fundamental and technical backdrop show that this stock is not set to make its way to new highs anytime soon. The fact that PPG is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.
PPG shows a worst-in-class ‘F’ rating in our Zacks Momentum Style Score category, indicating shares are likely to move lower based on unfavorable price and earnings momentum trends.
Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of PPG until the situation shows major signs of improvement.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
