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Investing.com - BMO Capital downgraded Axalta Coating Systems (NYSE:AXTA), a $6.5 billion market cap coating manufacturer, from Outperform to Market Perform and significantly reduced its price target to $33.00 from $51.00. The stock, currently trading at $29.85, is showing signs of being slightly undervalued according to InvestingPro’s Fair Value analysis.
The downgrade comes as BMO Capital completed a comprehensive analysis of the repair and refinish industry, identifying both near-term challenges and longer-term structural risks for Axalta’s business. This aligns with broader market sentiment, as InvestingPro data shows 8 analysts have recently revised their earnings expectations downward, despite the company’s attractive P/E ratio of 14.6x and solid gross margin of 34.36%.
BMO Capital specifically highlighted concerns about Advanced Driver Assistance Systems (ADAS) and safety trends reaching a potential "tipping point" that could accelerate the reduction in accident rates going forward.
The firm noted that these technological safety improvements, combined with pressures in the insurance sector and an aging car fleet, may continue to shrink refinish volumes in the automotive coatings market.
While BMO Capital acknowledged that near-term headwinds in the Refinish segment had been previously disclosed, the downgrade reflects heightened concern about the long-term outlook for this key business segment.
In other recent news, Axalta Coating Systems reported its first-quarter 2025 earnings, revealing an adjusted diluted earnings per share (EPS) of $0.59, surpassing the forecasted $0.55. However, the company’s revenue came in at $1.26 billion, slightly below the expected $1.29 billion. Despite the revenue shortfall, Axalta’s adjusted EBITDA margin grew for the tenth consecutive quarter, reflecting strong operational strategies. Axalta projects its full-year net sales to range between $5.3 billion and $5.375 billion, with adjusted EBITDA margins expected to approach 22%.
In other developments, JPMorgan analyst Jeffrey Zekauskas downgraded Axalta’s stock rating from Overweight to Neutral, reducing the price target from $42.00 to $32.00. The downgrade reflects concerns about potential challenges in the automotive and industrial coatings sectors, which may impact the company’s performance. Zekauskas highlighted risks in the global auto OEM market and the North American Refinish market, which could lead to volume and earnings disappointments for Axalta. Despite Axalta trading at a discount compared to PPG (WA:IBSP) Industries (NYSE:PPG), JPMorgan no longer views the stock as relatively attractive. The revised outlook by JPMorgan signals caution to investors regarding Axalta’s year-ahead performance in light of anticipated market challenges.
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