PPG Industries: Trading At A Discount To Its Competitors

Jun. 7.13 | About: PPG Industries, (PPG)

PPG Industries Inc. (NYSE:PPG) is a U.S. company with operations in more than 70 different countries. It has a total of six business segments including performance coating, industrial coating, architectural coatings, optical and specialty materials, chemicals and glass. Despite the slow recovery of the economy from the downturn in FY08, PPG is performing at a high rate. With the increase in cost and unavailability of organic petroleum-based and inorganic raw materials, the industry is facing a lot of risks and PPG is working to minimize these risks through its current acquisitions and diversifications in the overseas market. PPG has acquired European coating company Dyrup and Columbian company Colpsia to expand its market in Europe and Latin America. It is also conducting joint ventures with Asian Paints in India. Furthermore, in December FY12 an agreement was announced by PPG to acquire the North American architectural coating business of AkzoNobel (OTCQX:AKZOF), which would make it the number one company in architectural coating in Canada and second in the US (Source: Company Financials). Due to these proactive measures, the company has shown an increase in its revenues of all its business segments and an increase in the dividend yield.

PPG Relative Growth

Since October 2012 PPG has been consistently outperforming the S&P 500 index, its stock pricing hasClick to enlargeincreased by 60% since July 2012 and the company has significantly improved its performance in the last 3 months of FY13.

As far as its competitors are concerned, PPG's major competition is with companies like Ecolab Inc. (NYSE:ECL), Sigma-Aldrich Corporation (NASDAQ:SIAL) and Rockwood Holding Inc. (NYSE:ROC). As far as market capitalization is concerned, PPG is one of the biggest companies in the industry. For the past year PPG has been performing exceptionally well as compared to its three major competitors. As mentioned above, since July 2012 the stock value of PPG has increased by 60%, whereas the growth of ECL, SIAL and ROC are 35%, 23% and 51%, respectively. This shows that investors are satisfied with the growth prospects of PPG.

Source: Yahoo Finance

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Comparative Analysis

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Source: Morningstar

The price-to-earnings ratio of PPG is significantly below all the major competitors and the industry average. This is vastly due to the additions in investments and business acquisitions. In 2012 the capital spending in property and investments of the company increased to $411 million. Along with that, the company doubled its spending on business acquisitions, from $56 million to $122 million. Furthermore, PPG spent its capital in short-term investments of some $1.332 billion (Source: Company Financials). This shows that the stock still has a lot of potential to grow. The dividend yield of the company has increased from last year and is more than the average of its competitors and the industry, making the stock a viable option for investors looking for a relatively high and stable dividend yield. On the basis of price-to-book ratio, the company is overvalued compared to the industry. The price-to-sales ratio is lower than the competitors' average and mildly higher than the industry, which shows that this is still an attractive investment.

Financial Stability

Source: Morningstar

The graph above shows that the company's liquidity has declined over the years, which is not a positive sign and can be unfavorable for the company. The quick ratios show that PPG has the ability to pay off its liabilities, even after the exclusion of its inventory, but this ratio has also seen a decline over the past years. The financial leverage and debt-to-equity ratio is one major issue for the firm, but after FY11 we can see a decline in these ratios, which is a positive sign for the company as it would lessen the severity of solvency issues.

Conclusion

PPG Industries Inc. has a very positive outlook. It has a total of six business segments, making it a company with diversified businesses, which would help in the minimization of risk. It has come out as one of the strongest companies in the paints and coatings industry in the US, with its operations all over the globe. For the past year it has been outperforming the S&P 500 benchmark and is performing better than most of its competitors in the industry. Its recent increase in investments and business acquisitions indicates strong growth for the company in the near future. Furthermore, PPG is mitigating its risks of unavailability of raw materials and price hikes by getting into the Gulf and Indian markets, as well as by keeping a wide variety of suppliers all over the world. Keeping all of this analysis in consideration, I would suggest a buy stance for the investor.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.