RPM International Pops On Results, But PPG Industries May Be A Better Buy

10/06/2022

3 minutes read

2022.10.06 08:02

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RPM International posted strong quarter, shares are moving higher
Guidance is favorable
However, PPG Industries may be the better buy

RPM International (NYSE:) is a bellwether of sorts making coatings and construction products for a wide range of uses. The company just reported a strong quarter and gave favorable guidance that points to peak inflation and widening margins for the but PPG Industries (NYSE: NYSE:) is the better buy, now, in the wake of the report.

RPM International has three things counted against it that make PPG Industries a better value, a better yield, and a stock with more upside potential. The takeaway for investors is that RPM International’s results are good news for the market but don’t rush to buy it now that the shares are back near the all-time highs. If shares of RPM stock are going to rally higher and do so in a meaningful way there will be a better signal.

RPM International Beats On Strong Organic Results

RPM International had a really and set all-time records for most of the important metrics. The company reported $1.93 billion in revenue which is not only a record but up 17% from last year and it beat the Marketbeat.com consensus estimate by 265 basis points as well. The strength was driven by outperformance in all segments that were driven by volume as well as pricing increases. On an organic basis, the company reported sales growth of 19.5% including 1% worth of acquisitions that were offset by a 3.4% FX-related headwind.

The truly good news in this report is that margins widened and there is little talk of upward price pressures or the need to raise prices any further. The takeaway is that EBIT increased by 29.8% to outpace revenue growth by more than 1000 basis points while adjusted EBIT increased by 33% and net income by 25.6% and all are record levels. In regard to the bottom line, the GAAP EPS is up 31% YOY and the adjusted is up 36% YOY and also beat by a strong $0.14 as well.

The guidance is also strong as it includes a revenue target above the consensus estimate and an expectation for another 40% YOY increase in margin. The bad news for bulls expecting to see the stock hit a new all-time high, however, is that RPM International is trading at a high 20X its earnings which is about 5 handles greater than the broad market and 2 greater than PPG Industries which holds a near-identical position in the marketplace.

PPG Industries is also paying a slightly higher 2.1% dividend yield and the analysts are not expecting a record quarter. In fact, the analysts are expecting YOY growth to slow and for revenue to decline on a sequential basis. If PPG Industries’ results are even half as good as RPM International it would be a significant outperformance of the consensus and could spark a rally. And the dividend safety? PPG Industries is a Dividend King with a 38% payout ratio. There is not much about this dividend to worry about.

The Technical Outlook: RPM Pops, PPG Looks Like A Better Buy

The price action in RPM International was moving higher well before the FQ1 earnings were released and the stock is still moving higher now. Up 3.0% in post-release trading, the stock is, however, very close to resistance and may have a hard time moving much higher. Resistance is consistent with the all-time high and may cap gains until there is more clarity with the economy and the FOMC outlook. PPG Industries, on the other hand, is up a bit off its bottom but lagging behind its competitor and well below potential resistance. Assuming this company performs in a comparable fashion, there is a chance the price action could jump as much as 50% on the news.

RPM Chart