Axalta–Akzo Deal Re-Rates Risk/Reward: Limited Near-Term Upside and Elevated Execution Uncertainty Support Hold Rating

UBS analyst Joshua Spector downgraded the rating on Axalta Coating Systems to a Hold today, setting a price target of $35.00.

Joshua Spector has given his Hold rating due to a combination of factors related to Axalta’s risk/reward profile following the announced transaction with Akzo. Since the deal was first announced, Axalta’s share price has risen meaningfully, which in his view leaves only modest upside from current levels and makes the near- to medium-term return potential more balanced. He acknowledges that the proposed merger offers substantial cost-saving opportunities that could ultimately enhance profitability for the combined company, but he also notes that these benefits are not expected to be realized or visible in financial results until around 2028, leaving an extended period with limited catalyst. In addition, he points out that Axalta’s underlying revenue growth has been weak, particularly in its largest Performance Coatings business, and his estimates for EBITDA growth are below market consensus, reinforcing concerns about the company’s organic growth trajectory.

Spector also highlights deal-structure and strategic uncertainties that cap the attractiveness of the stock. The reverse break fee is relatively small and the likelihood of a higher competing bid appears to be diminishing over time, while the planned departure of Axalta’s CEO soon after closing raises questions about leadership and direction if the transaction were to fall through. If the deal is completed, Axalta’s performance would effectively become tied to Akzo, which UBS already rates Neutral and which, based on current trading levels, implies only a low-single-digit percentage upside for Axalta shareholders. Conversely, if the transaction breaks, Axalta would receive cash that could be deployed, but he believes the shares could de-rate until investors gain confidence in a refreshed long-term strategy. Reflecting these considerations, he lowers his valuation multiple and price target, concluding that a Hold rating is appropriate given the limited upside and meaningful execution and growth risks.

In another report released on January 7, Robert W. Baird also downgraded the stock to a Hold with a $35.00 price target.