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What Makes Axalta Coating Systems (AXTA) a Solid Choice Now

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Axalta Coating Systems Ltd. (AXTA - Free Report) witnessed a 21.7% surge in its stock value in a month, propelled by robust third-quarter earnings that exceeded expectations.

Presenting an enticing investment opportunity with strong growth prospects, AXTA sports a Zacks Rank #1 (Strong Buy).

Earnings Outperformance

In the third quarter, Axalta Coating outperformed expectations, posting adjusted earnings of 45 cents per share, surpassing the Zacks Consensus Estimate of 38 cents. With an average surprise of 6.7%, the company exceeded earnings estimates in three of the last four quarters.

Robust Growth Prospects

The Zacks Consensus Estimate for AXTA's 2023 earnings is pegged at $1.58, indicating year-over-year growth of 6.7%. The consensus estimate for the current year has experienced an upward revision of 8.2% in the past 60 days, underlining healthy growth potential.

An Outperformer

Shares of AXTA are up 15.5% in a year compared with the industry’s rise of 7.2% in the same period.

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Strong Q3 Results

In the third quarter, AXTA reported strong performance, with a 15.4% year-over-year increase in earnings and a 5.7% year-over-year growth in sales, reaching $1.3 billion. Income from operations rose by 32% year-over-year to $163 million and the operating margin improved by 250 bps to 12.5%. Adjusted EBIT also saw improvement, rising to $188 million from $148 million, with an adjusted EBIT margin of 14.3%, up by 240 bps from the previous year.

The Performance Coatings segment saw a 2.2% increase in net sales, driven by an improved price mix and a positive impact from foreign currency translation, partially offset by lower volumes. The segment's Adjusted EBIT rose to $135 million, with a margin of 15.8%. Mobility Coatings experienced a significant 13% growth in net sales, propelled by price-mix growth and volume improvement, especially in Greater China. The segment's Adjusted EBIT surged to $40 million, marking the seventh consecutive quarter of sequential earnings improvement.

Axalta witnessed a substantial rise in cash provided by operating activities, reaching $210 million compared with $80 million in the corresponding period of the prior year. The free cash flow in the quarter also experienced significant growth, totaling $182 million, as opposed to $51 million in the same period last year.

During the third quarter, Axalta executed a share repurchase program, buying back approximately 1.8 million common shares at an average price of $27.79 per share. The total consideration for these repurchases amounted to $50 million. Following the close of the quarter, Axalta strategically expanded its portfolio by acquiring Andre Koch AG, a well-established Refinish distribution partner headquartered in Switzerland. In light of these positive developments, Axalta raised its full-year 2023 earnings outlook.


Other Key Picks

Some other top-ranked stocks in the Basic Materials space are Universal Stainless & Alloy Products, Inc. (USAP - Free Report) , The Andersons Inc. (ANDE - Free Report) and Alamos Gold Inc. (AGI - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The consensus estimate for USAP’s current year earnings is pegged at 52 cents, indicating year-over-year growth of 170.3%. USAP beat the Zacks Consensus Estimate in three of the last four quarters and missed one, with the average earnings surprise being 44.4%. The company’s shares have rallied 113.6% in the past year.

The Zacks Consensus Estimate for ANDE’s current-year earnings has been revised 8.6% upward in the past 60 days. Andersons beat the Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 32.8% on average. ANDE’s shares have rallied around 36.5% in a year.

The consensus estimate for Alamos’ current fiscal year earnings is pegged at 52 cents, indicating year-over-year growth of 85.7%. AGI beat the Zacks Consensus Estimate in all of the last four quarters, with the average earnings surprise being 25.6%. The company’s shares have increased 39.8% in the past year.

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