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PPG Industries (NYSE:PPG) on Tuesday was downgraded to Equal Weight from a previous investment rating of Overweight by analysts at financial-services firm Barclays. They said the maker of paints, coatings and specialty materials is more difficult to value after announcing a possible sale of its architectural coatings business in the United States and Canada.
“The financial performance of the business and magnitude of difference relative to [competitor] Sherwin Williams (SHW) are worse than most investors believed,” Michael Leithead, analyst at Barclays, said in a February 27 report. “A key investor concern over the years on PPG (PPG) has been muted volumes relative to traditional end-market indicators.”
PPG management on Monday said the company had hired investment bank Goldman Sachs to help shop around its U.S. and Canadian coatings business. The company’s brands in those regions include Glidden, Olympic, Liquid Nails, Sico and Pittsburgh Paints & Stains.
Barclays estimated the architectural coatings unit could fetch $800 million to $1 billion pretax in a sale, based on an estimated range of valuation multiples and earnings before interest, taxes, depreciation and amortization.
“A strategic review that ends up in ‘no deal’ after disclosing these financials could actually likely weigh on the story/multiple,” according to Barclays. “We do think it's the correct, albeit painful, decision for PPG (PPG) leadership to take.”
Barclays cuts its price target on PPG (PPG) to $149 a share from $163 a share previously, based on a lower price-to-earnings multiple of 17.5 times, down from 19 times.