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PPG Industries Continues to Trade at a Discount to Sherwin-Williams

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PPG Industries’ forward PE

As of November 28, 2017, PPG Industries’ (PPG) one-year forward price-to-earnings multiple stood at 17.90x as compared to its peer Sherwin-Williams with a one-year-forward price-to-earnings multiple of 22.40x. The forward price-to-earnings multiple is one of the valuation methods that factors in future earnings. This tool helps investors to compare two or more companies operating in the same industry and helps them to understand which companies are seeing better growth and which companies could be undervalued or overvalued.

PPG continues to trade at discount

PPG continues to trade at a discount to its peer Sherwin-Williams. Analysts are expecting PPG’s fiscal 2018 adjusted earnings per share (after accounting for the divestiture of the glass business, the acquisition of Crown Group, and share buybacks) to be at $6.64, which represents a growth rate of 12.9% over the expected earnings per share in fiscal 2017. On the other hand, Sherwin-Williams, which completed the acquisition of Valspar, is expected to continue to integrate operations and achieve the cost-saving synergy. As a result, analysts have projected SHW’s fiscal 2018 adjusted earnings per share to be at $18.09, implying growth of 23.4% over fiscal 2017 expected adjusted EPS.

As SHW’s earnings growth is higher than PPG’s, Sherwin-Williams commands a premium over PPG Industries. This gap could continue to exist until PPG outperforms SHW’s earnings growth.

You can invest in the iShares Global Materials ETF (MXI) for exposure to PPG Industries. The fund has invested 1.5% of its total holdings in PPG Industries. The top holdings of the fund include DowDuPont (DWDP) and Monsanto (MON), which have weights of 8.0% and 2.5%, respectively, as of November 28, 2017.

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