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Why Should You Add PPG Industries (PPG) to Your Portfolio?

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Shares of PPG Industries Inc. (PPG - Free Report) have shot up roughly 28% over the past three months. The company is benefiting from its cost-saving actions and synergies of acquisitions amid a challenging environment due to the coronavirus pandemic.

We are positive on the company’s prospects and believe that the time is right for you to add the stock to the portfolio as it looks promising and is poised to carry the momentum ahead.

Let's see what makes this Zacks Rank #2 (Buy) stock a compelling investment option at the moment.

Estimates Northbound

Earnings estimate revisions have the greatest impact on stock prices. Over the past two months, the Zacks Consensus Estimate for PPG Industries for the current year has increased around 14.9%. The consensus estimate for 2021 has also been revised 5.6% upward over the same time frame.

Superior Return on Equity (ROE)

PPG Industries’ ROE of 23.9%, as compared with the industry average of 9.6%, manifests the company’s efficiency in utilizing shareholder’s funds.

Capital Allocation

The company remains committed to boost returns to shareholders leveraging strong cash flows. In July 2020, it raised its quarterly dividend by 6% to 54 cents per share. Notably, PPG Industries has raised its annual dividend payout for 49th straight year. The company paid dividend worth $120 million in the second quarter. It generated around $500 million of cash from operations during the quarter.

Cost-Saving Actions to Support Margins

PPG Industries is actively managing costs and taking appropriate pricing actions amid a challenging business environment. It remains focused on improving its cost structure and recovering margins through price hikes.

PPG Industries achieved an interim cost savings of roughly $170 million in the second quarter from its cost mitigation actions. Moreover, it achieved more than $20 million in cost savings from its restructuring programs in the second quarter. PPG Industries also expects incremental restructuring savings of $30-$35 million in the third quarter. It sees restructuring savings of $60-$70 million in the second half of 2020.

The company, in June, also approved substantial restructuring actions to lower its global cost structure. The plan includes a voluntary separation program that was offered in the United States and Canada. Upon completion, PPG Industries anticipates the planned actions to offer $160-$170 million in annual pre-tax cost savings.

Acquisitions to Drive Sales

PPG Industries is taking steps to grow business through strategic acquisitions. The buyout of Whitford Worldwide in 2019 further strengthened its robust industrial coatings solutions portfolio while the Hemmelrath acquisition expanded its range of automotive coating products.

The acquisition of specialty materials maker, Dexmet Corporation, also allows the company to add value to its customers by enhancing product offerings as well as expanding R&D capabilities. The purchase of Industria Chimica Reggiana also complements the company’s current product offerings for the automotive refinish and light industrial coatings industries. Earlier this year, the company also closed the acquisition of Alpha Coating Technologies. Acquisitions are expected to contribute to the company’s sales in 2020.

 

Stocks to Consider

Other top-ranked stocks worth considering in the basic materials space include Barrick Gold Corporation (GOLD - Free Report) , Yamana Gold Inc. and Eldorado Gold Corporation (EGO - Free Report) .

Barrick Gold has a projected earnings growth rate of 80.4% for the current year. The company’s shares have gained around 66% in a year. It currently has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Yamana Gold has a projected earnings growth rate of 76.9% for the current year. The company’s shares have rallied roughly 91% in a year. It currently carries a Zacks Rank #2.

Eldorado Gold has an expected earnings growth rate of 2,215% for the current year. The company’s shares have gained around 39% in the past year. It presently carries a Zacks Rank #2.

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