Options Trade – PPG Industries, Inc. (NYSE:PPG) Calls 
Wednesday, January 15, 2014

Coat Your Path To A Profit With This Options Call!

**OPTIONS TRADE: Buy the PPG May 2014 200.000 call (PPG140517C00200000) at or under $5.00 (Max. of $5.30), good for the day. Place a protective stop limit at $2.00 and a pre-determined sell at $9.00.

by Ian Harvey

January 15, 2014

Introduction

Coatings giant, PPG Industries, Inc. (NYSE: PPG), is set to release its fourth-quarter 2013 results before the opening gong on Jan 16.

In the last quarter, the Pennsylvania-based company delivered a 4.3% positive earnings surprise on the heels of improving demand trends across major markets, cost reduction measures and continued strong performance of its coatings business.

Shares of PPG Industries Inc. hit a new 52-week high of $190.07 on Dec 31 and eventually closed at $189.66.

Year-to-date, PPG Industries’ share price recorded a healthy return of 42.30%. The company’s long-term estimated earnings per share (EPS) growth rate is 8.5%. PPG Industries’ average volume of shares traded over the last three months was approximately 755K.

PPG Industries is expected to see a seasonally weaker fourth quarter than the third across several of its end markets including architectural coatings. However, it should gain from continued improvement in global demand trends.

PPG is expected to have healthy momentum across aerospace and automotive OEM markets coupled with PPG Industries’ cost containment measures through its restructuring program to lend support to earnings in the fourth quarter. The company’s restructuring measures are expected to fetch meaningful cost savings this year.

Moreover, PPG Industries will gain from its acquisition of North American architectural coatings business of Dutch paints company AkzoNobel, N.V. (AKZOY). The acquisition has reinforced its branded paint product offerings and scale in the North American architectural paint market. The company has already achieved more than half of the expected synergies of $200 million from the acquisition.

Company Details

PPG Industries, Inc. (PPG) is a global supplier of protective and decorative coatings. PPG operates in six business segments. The Performance Coatings, Industrial Coatings and Architectural Coatings-EMEA segments supply protective and decorative finishes for customers in a range of end use markets, including industrial equipment, appliances and packaging; factory-finished aluminum extrusions and steel and aluminum coils; marine and aircraft equipment; automotive original equipment; and other industrial and consumer products.

The Optical and Specialty Materials segment consist of the optical products and silicas businesses. It is a producer and supplier of basic chemicals. Glass segment produces flat glass and continuous-strand fiber glass. The Glass business segment consists of the flat glass and fiber glass businesses.

In January 2013, the combined company formed by uniting Georgia Gulf with PPG's former commodity chemicals business is named Axiall Corporation.

Key Statistics for PPG

Current P/E Ratio (ttm) 23.5246
Estimated P/E(12/2013) 23.2708
Relative P/E vs. SPX 1.3589
Earnings Per Share (USD) (ttm) 8.1145
Est. EPS (USD) (12/2013) 8.2030
Est. PEG Ratio 2.8265
Market Cap (M USD) 27,110.70
Shares Outstanding (M) 142.02
30 Day Average Volume 817,300
Price/Book (mrq) 5.2026
Price/Sale (ttm) 1.8565
Dividend Indicated Gross Yield 1.28%
Cash Dividend (USD) 0.6100
Dividend Ex-Date 11/06/2013
5 Year Dividend Growth 2.98%
Next Earnings Announcement 01/16/2014

Earnings

PPG Industries (NYSE:PPG) last issued its quarterly earnings data on Thursday, October 17th. The company reported $2.44 EPS for the quarter, beating the Thomson Reuters consensus estimate of $2.33 by $0.11. The company had revenue of $4.00 billion for the quarter, compared to the consensus estimate of $3.96 billion.

During the same quarter in the prior year, the company posted $2.24 earnings per share. The company’s quarterly revenue was up 16.8% on a year-over-year basis. Analysts expect that PPG Industries will post $8.20 EPS for the current fiscal year.

Continued Growth of PPG Industries

PPG Industries outshone earnings expectations in the third quarter of 2013 on the back of improving demand trends across major markets, cost reduction measures and continued strong performance of its coatings business. Strength across aerospace and automotive original equipment manufacturer (OEM) coatings supported the results.

Excluding one-time items, the company posted earnings from continuing operations of $2.44 a share in the quarter, surpassing the Consensus Estimate of $2.34. The adjusted earnings exclude one-time items including restructuring and acquisition charges.

Revenues climbed roughly 17% year over year to $3,980 million, outpacing the Consensus Estimate of $3,960 million. Healthy results in the coatings business was fueled by gains across automotive OEM coatings, automotive refinish and aerospace.

PPG Industries, has an aggressive cost cutting and restructuring strategy. Cost savings from these restructuring efforts will act as a positive catalyst for the company. PPG Industries expects its European restructuring program to fetch cost savings of $70 million to $80 million in 2013.

Separately, the company’s board, in July 2013, approved a new $102 million restructuring program focused on achieving cost synergies associated with the North American architectural coatings business takeover. The restructuring program will also include actions for businesses grappling with challenging market conditions, especially protective and marine coatings and certain European businesses such as architectural coatings and fiber glass.

PPG Industries also has an impressive record of returning cash to shareholders through dividends and share buybacks. The company has a rich history of raising dividends.

PPG Industries expects recovery across its end markets to continue. Majority of economic sectors in North America, one of its largest regions, are expected to exhibit improvement due to increasing industrial and chemical production activity. The company is seeing strength in the North American automotive OEM and aerospace markets.

PPG Industries is also taking several initiatives to grow its business inorganically. PPG Industries, in April 2013, closed the acquisition of the North American architectural coatings business of Dutch paints company AkzoNobel, N.V. (AKZOY) for $1.05 billion. This marked the second-largest acquisition in the company’s history. The company expects to achieve $200 million in annual synergies from the buyout within the first three full years. Moreover, in an effort to strengthen its position in the aerospace industry, PPG Industries has acquired specific assets of privately-held specialty coatings company Deft Inc.

Analysts Opinions

Deutsche Bank reiterated their buy rating on shares of PPG Industries (NYSE:PPG) in a research note released on Friday 3rd January, 2014. They currently have a $210.00 target price on the stock, up from their previous target price of $195.00.

“While meetings with PPG EVP Viktor Sekmakas highlighted the company’s preference for M&A vs buybacks with the ~$4B of cash it will have post the sale of Transitions 1H14, the meetings also highlighted mitigants to the risks associated with M&A including a strong track record of success and a record of financial conservatism evidenced most recently by PPG being the losing bidder on both Comex (Sherwin) and Inver (Valspar). With PPG positioned to deliver 15% CAGR EPS growth in ’14-’15 (driven by Akzo synergies, operating leverage from improving European demand, the deployment of the $4B in cash) and valuation a fair 19.5x ’14E EPS (vs 19.9x for Sherwin), reiterate Buy.,” Deutsche Bank’s analyst commented.

Also, PPG Industries has been the subject of a number of other recent research reports:-

• Analysts at RBC Capital raised their price target on shares of PPG Industries from $176.00 to $205.00 in a research note to investors on Wednesday, October 23rd. They now have an outperform rating on the stock.

• Separately, analysts at Susquehanna raised their price target on shares of PPG Industries from $185.00 to $205.00 in a research note to investors on Tuesday, October 22nd. They now have a positive rating on the stock.

• Finally, analysts at UBS AG raised their price target on shares of PPG Industries from $156.00 to $173.00 in a research note to investors on Friday, October 18th. They now have a neutral rating on the stock.

Six equities research analysts have rated the stock with a hold rating and eleven have assigned a buy rating to the company’s stock. The stock has an average rating of Buy and a consensus price target of $169.50.

Analyst Firms Making Recommendations

ARGUS RESEARCH B OF A M L
BAIRD R W BARCLAYS CAPITA
CREDIT AGRICOLE DEUTSCHE BK SEC
GOLDMAN SACHS J.P. MORGAN
JEFFERIES & CO. KEYBANC CAP MKT
MORGAN STANLEY NORTHCOAST RESE
SUNTRUST ROBINS UBS
WELLS FARGO SEC

Conclusion

PPG Industries' business quality ranks among the best of the firms. The firm has been generating economic value for shareholders with relatively stable operating results for the past few years, a combination we view very positively.

PPG Industries is diverse with six reportable business segments: Performance Coatings, Industrial Coatings, Architectural Coatings - EMEA (Europe, Middle East and Africa), Optical and Specialty Materials, Commodity Chemicals and Glass.

PPG Industries has a good combination of strong free cash flow generation and manageable financial leverage. We expect the firm's free cash flow margin to average about 10.9% in coming years. Total debt-to-EBITDA was 1.6 last year, while debt-to-book capitalization stood at 49.7 %.

The firm isn't too capital-intensive (capex averages about 2.5% of sales), has pricing power, and its top market share position in a consolidating industry is hard not to like.

PPG Industries is acquisitive, but for the most part, we like its organic growth potential via emerging market expansion, increased sales content per airplane, and improving auto production.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: Buy the PPG May 2014 200.000 call (PPG140517C00200000) at or under $5.00 (Max. of $5.30), good for the day. Place a protective stop limit at $2.00 and a pre-determined sell at $9.00.



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