Bellwether RPM International posts results

Key points

  • RPM International had a strong quarter and stocks are rising.
  • Forecasts are also favorable and point to widening margins for the S&P 500.
  • However, three factors make PPG Industries the best buy for investors.

RPM International (NYSE: RPM) is an indicator of sorts that manufactures coatings and building products for a wide range of uses. The company just posted a strong quarter and gave favorable guidance pointing to a spike in inflation and widening margins for the S&P 500, but PPG Industries (NYSE: PPG) is the best buy, now, following the report.

RPM International has three elements that make PPG Industries better value, better yield and a stock with more upside potential. The bottom line for investors is that RPM International’s results are good news for the market, but don’t rush to buy it now that stocks are back near all-time highs. If RPM shares will rise and do so significantly, there will be a better signal.

RPM International beats on strong organic results

RPM International had a very strong quarter and set all-time highs for most major metrics. The company posted revenue of $1.93 billion, which is not only a record, but up 17% from last year and it also exceeded Marketbeat’s consensus estimate. com by 265 basis points. Strength was driven by outperformance in all segments which were driven by volume as well as price increases. On an organic basis, the company recorded sales growth of 19.5%, including 1% from acquisitions which were offset by a 3.4% currency headwind.

The real good news in this report is that margins have widened and there is little talk of upward pricing pressures or the need to raise prices further. The result is that EBIT increased by 29.8% to outpace revenue growth by more than 1,000 basis points, while adjusted EBIT increased by 33% and net profit by 25.6%, and all are at record highs. In terms of net income, GAAP EPS is up 31% YoY and the adjustment is up 36% YoY and also beaten 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 of another 40% year-over-year margin increase. The bad news for bulls expecting the stock to hit a new all-time high, however, is that RPM International is trading high at 20x earnings, about 5 handfuls higher than the broader market. and 2 more than PPG Industries which holds an almost identical position in the market.

PPG Industries is also paying a slightly higher dividend yield of 2.1% and analysts are not expecting a record quarter. In fact, analysts expect year-over-year growth to slow and revenue to decline on a sequential basis. If the results of PPG Industries are half as good as those of RPM International, this would constitute a significant outperformance compared to the consensus and could trigger a rally. What about dividend security? PPG Industries is a Dividend King with a payout ratio of 38%. There is not much to fear from this dividend.

The Technical Outlook: RPM Pops, PPG Looks Like a Best Buy

RPM International’s price action was rising long before the first quarter earnings release and the stock continues to rise now. Up 3.0% in post-release trading, the stock is very close to resistance, however, and may struggle to rally much higher. Resistance is consistent with the all-time high and may cap gains until the economy and FOMC outlook becomes clearer. PPG Industries, on the other hand, is a bit behind but behind its competitor and well below the potential resistance. Assuming this company performs comparably, there is a chance that the price action could climb as much as 50% on the news.

Bellwether RPM International posts results

Before you consider RPM International, you’ll want to hear this.

MarketBeat tracks daily the highest rated and most successful research analysts on Wall Street and the stocks they recommend to their clients. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the market ripples…and RPM International was not on the list.

Although RPM International currently has a “Hold” rating among analysts, top-rated analysts believe these five stocks are better buys.

See the five actions here

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