On Thursday, KeyBanc has increased its price target for Axalta Coating Systems (NYSE:AXTA) shares to $40.00 from the previous $38.00, while keeping an Overweight rating on the stock.
The firm's analyst praised Axalta's first-quarter performance, noting the company's successful execution of its margin-focused strategy. This strategy led to a significant improvement in EBITDA margins, which rose 340 basis points year-over-year and 67 basis points sequentially.
The analyst believes that despite the risks of Axalta reaching peak margins in 2024, the company's ongoing demonstration of productivity gains and price discipline could support a re-rating of its stock. The target valuation is anticipated to approach the historical 10.5-11.0x EV/EBITDA range. The revised price target of $40 reflects a more optimistic view of the company's earnings potential.
Axalta's volume trajectory in the first quarter was also highlighted as constructive, despite a modest 1.6% decline in its Performance Coatings segment. KeyBanc anticipates that lagging end markets, including construction and commercial vehicle sectors, will stabilize as 2024 progresses.
The analyst's commentary underscores the belief that Axalta is on a strong path, with management's efforts to enhance margins already yielding tangible results. The company's focused approach to improving productivity and maintaining pricing discipline is seen as a key driver for the stock's potential re-rating and the increase in the price target.
KeyBanc's decision to maintain an Overweight rating while raising the price target to $40 is based on these positive developments in Axalta's business operations, suggesting confidence in the company's future financial success.
InvestingPro Insights
Recent data from InvestingPro underscores the positive sentiment surrounding Axalta Coating Systems (NYSE:AXTA), aligning with KeyBanc's upgraded price target. With a perfect Piotroski Score of 9, Axalta demonstrates a strong financial position. The company's stock has also experienced a significant return over the last week, reflecting investor confidence. Additionally, two analysts have revised their earnings upwards for the upcoming period, further bolstering the outlook for Axalta.
InvestingPro Data highlights Axalta's robust financial metrics, with a Price/Earnings (P/E) ratio of 26.1 for the last twelve months as of Q1 2024. The company's revenue growth was modest at 4% over the same period, with a gross profit margin of 32.07%. These figures, combined with a strong free cash flow yield, suggest that Axalta's margin-focused strategy is translating into tangible financial gains.
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