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Behind RPM International's Fiscal 1Q18 Expectations

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Part 5
Behind RPM International's Fiscal 1Q18 Expectations PART 5 OF 5

Understanding RPM International’s Valuations ahead of Its Fiscal 1Q18 Earnings

RPM International’s forward PE

On September 25, 2017, RPM International (RPM) had a one-year forward PE (price-to-earnings) multiple of 17.3x. By comparison, peer PPG Industries (PPG) is trading at a one-year-forward PE multiple of 16.4x.

Understanding RPM International&#8217;s Valuations ahead of Its Fiscal 1Q18 Earnings

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The forward PE multiple considers future earnings and tells us how much investors are paying for a stock per dollar of its expected earnings over the next 12 months. Investors use this multiple to compare two companies operating in the same industry and to see which company is overvalued or undervalued.

RPM’s premium

RPM is now trading at a premium to PPG Industries. RPM reported lower-than-expected 4Q17 fiscal earnings, causing the stock price to fall ~7%. But now that RPM has announced additional cost-saving measures in addition to its acquisitions, we could see a boost in RPM’s earnings in fiscal 2018. Analysts foresee that RPM’s fiscal 2018 adjusted EPS (earnings per share) could reach $2.87, which would represent a 16.2% growth over the previous year.

Analysts have estimated PPG Industries’ fiscal 2018 EPS to be $6.79, representing a 12.0% growth over its fiscal 2017 expected earnings. With RPM’s one-year forward EPS growth better than PPG’s forward EPS growth, RPM is trading at a premium to PPG.

Investors looking for indirect exposure to RPM stock can invest in the SPDR S&P Dividend ETF (SDY), which has 0.90% of its total portfolio in RPM. SDY’s other holdings include Target (TGT) and Chevron (CVX), which had weights of 2.3% and 1.9%, respectively, on September 25, 2017.

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