After A 25% Fall Is PPG Industries A Better Buy Than DuPont?

April 22nd, 2020 by Trefis Team

Based on historical performance, and given the current environment, PPG Industries (NYSE:PPG) appears to be an attractive investment opportunity compared to DuPont (NYSE:DD). With the global economy feared to go into recession, and the softness seen in the automotive and oil & gas markets, both the companies could face challenges in the near term, which explains the drop in the stock prices. DuPont’s stock is down by about -23% compared to about -26% for PPG Industries since early February, after the WHO declared a global health emergency. While the near term outlook for both the companies remains weak, we believe that among the two, PPG Industries could be a better bet in the current environment. PPG Industries has undertaken cost management actions, and it is expected to achieve $75 million savings in 2020. Looking at DuPont, it is exposed to potential liabilities toward its PFOA, a cancer-linked chemical which was used to make Teflon nonstick coatings. The business is now part of Chemours, and both the companies jointly paid $671 million to settle the lawsuits in Ohio in 2017. Chemours filed a lawsuit against DuPont in 2019, alleging that they were misled about the extent of liabilities the company would be forced to accept. Our analysis, Is DuPont Expensive Or Cheap Compared To PPG Industries After Declining Over -23%? compares the stock price performance and fundamentals of PPG Industries and DuPont over the last few years.

CORONAVIRUS CRISIS: Since early February, DuPont stock has declined -23% compared to -26% for PPG Industries

  • DuPont’s stock has declined by about 23% since early February, compared to a 26% decline for PPG Industries, after the WHO declared a global health emergency relating to Coronavirus.
  • DuPont’s stock fell 3% while PPG Industries stock fell 13% since March 8th, as the U.S. cases accelerated.
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HISTORICAL PERFORMANCE: From 2009-2019 DuPont stock has grown at 0.14x the rate of PG Industries

  • DuPont stock went from $31 at the end of 2009 to $51 at the end of 2019, representing a change of 64%.
  • During the same time period, PPG Industries went from $24 to $133, representing a change of 449%.
  • This implies that DuPont stock grew at 0.14x the rate of PPG Industries.

ANALYSIS:

How do valuations for DuPont and PPG Industries compare, based on the review of fundamentals?

  • P/S Ratio: Based on 2019 P/S ratios, PPG Industries stock looks marginally expensive compared to prior years, but cheaper compared to DuPont’s P/S ratio over the recent years.
  • DuPont 2019 P/S ratio of 1.8 is 0.95x that of the 2019 PPG Industries P/S ratio of 1.9.

Historical Revenue & EPS Growth

  • DuPont 2015-19 annualized revenue growth of 41% is 25x that of the 2015-19 PPG annualized revenue growth rate of 1.6%.
  • DuPont 2015-19 annualized EPS growth of -9.8% is much lower than that of the 2015-19 PPG Industries annualized EPS growth rate of 0.3%.
  • Note DuPont went through major restructuring over the recent years, which impacted the revenue and earnings growth.

Conclusion

Both the companies are expected to face pressure on their earnings growth in the near term, due to the softness in automotive and oil & gas markets. While DuPont has posted a significantly higher revenue growth, it can partly be attributed to significant restructuring that the company has gone through over the recent years. PPG Industries has seen comparatively better EPS growth, and it has a low P/S ratio, as well as debt levels. As such, we believe PPG Industries appears to be a better bet compared to DuPont.

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