SHW - Citi downgrades paint stocks citing raw material inflation

Citi fires off downgrades on paint companies PPG (PPG +2.1%), Axalta Coating (AXTA +1.6%), and Sherwin-Williams (SHW +0.0%) after both PPG and Sherwin-Williams lowered Q3 guidance. "Shortages, pricing headwinds, and the effect of the semi shortage on Auto OEM builds" have led to the lower outlook writes analyst P.J. Juvekar. Prices for paint ingredient Propylene have risen ~80% YTD, while hurricane Ida took down ~55% and ~30% of production capacity for the chemicals MDI and chlor-alkali, respectively. It's certain that coating companies will increase their prices, says Citi, but it may take the typical 3-6 month lag period before the offset is realized. Wall Street analysts were previously bullish on the paint stocks while Seeking Alpha's quant rating placed neutral or bullish grades on them.

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Citi downgrades paint stocks citing raw material inflation