Credit Suisse: PPG 'Ripe For M&A'

PPG Industries, Inc. (NYSE: PPG) is "ripe for M&A," according to Credit Suisse's Christopher Parkinson who assumed coverage on the stock with an Outperform rating and raised the target price by $13 to $115.

"We view the potential for M&A as highly probable, particularly at ~1.0x adjusted leverage and two of their primary competitors pre-occupied with their own M&A deal," Parkinson wrote in a note.

The comment comes after rival Sherwin-Williams Co (NYSE: SHW) agreed to buy The Valspar Corp (NYSE: VAL) in a $9.3 billion deal.

However, the analyst is cautious on PPG's Auto OEM unit as recent data in the U.S. Auto market indicates the environment is becoming incrementally more challenging, and there are more chances of production cuts in Q2 and Q3 in the absence of a material uptick in the spring selling season.

In the long term, the analyst views geographic presence/diversification and producer breadth as key tailwinds for the Pittsburgh, Pennsylvania-based supplier of paints, coatings and glass products.

Parkinson noted that PPG's refinish business will benefit from increases in the global car parc, miles driven and the rapid pace of MSO consolidation, which should be a solid tailwind to the Performance Coatings segment.

"Based on PPG's pristine balance sheet, the likelihood for modest raw material benefits and high capability and capacity for accretive M&A, we retain a positive view," added Parkinson who raised his 2016 EPS estimate to $6.25 from $6.10. Wall Street analysts, on average, expect earnings of $6.25 a share.