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Reading PPG Industries' 3Q17 Pre-Earnings Expectations

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Part 5
Reading PPG Industries' 3Q17 Pre-Earnings Expectations PART 5 OF 5

What Do PPG Industries’ Valuations Suggest ahead of Its 3Q17 Results?

PPG Industries’ forward PE

The forward PE (price-to-earnings) is one of several valuation tools that help investors to make investment decisions. Forward PE considers the future earnings at the time of valuation. Investors use this valuation method to compare two or more companies operating in the same industry to see which company is overvalued or undervalued.

On October 11, 2017, PPG Industries (PPG) was trading at a one-year forward PE multiple of 17.1x, compared with Sherwin-Williams’ (SHW) multiple of 22.5x.

What Do PPG Industries&#8217; Valuations Suggest ahead of Its 3Q17 Results?

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PPG trials its peer

Over the past two years, PPG’s valuations have trailed Sherwin-Williams, primarily due to SHW’s better earnings growth. But PPG’s continued efforts at better cost management and its previously announced restructuring plan have led analysts to project its adjusted earnings for fiscal 2017 to be $6.01, which would be 3.9% higher than in fiscal 2016.

PPG also plans to spend $2.5 billion–$3.5 billion through fiscal 2018 on acquisitions and share repurchases, and so analysts foresee that PPG’s fiscal 2018 adjusted EPS (earnings per share) will be $6.77, or 12.5% higher than its expected adjusted EPS in fiscal 2017.

Meanwhile, SHW continues to work toward synergies from its Valspar acquisition. SHW’s EPS for fiscal 2017 is projected to be $14.74, representing a 17.6% rise. For fiscal 2018, SHW’s EPS is expected to be $18.00, which would represent a huge growth of 22.1% over its expected fiscal 2017 earnings. SHW’s earnings growth is expected to keep outperforming PPG’s earnings growth.

Investors can hold PPG indirectly by investing in the Vanguard Materials ETF (VAW), which has 3.2% of its portfolio in PPG Industries. Other VAW holdings include Monsanto (MON) and LyondellBasell (LYB), which had weights of 5.8% and 3.7%, respectively, on October 11, 2017.

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