BMO Capital analyst John McNulty downgraded the rating on Axalta Coating Systems to a Hold today, setting a price target of $33.00.
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John McNulty has given his Hold rating due to a combination of factors impacting Axalta Coating Systems. The primary concern stems from the challenges in the refinish industry, particularly due to the advancements in Advanced Driver Assistance Systems (ADAS) and smarter car technologies. These innovations are expected to lead to a significant decrease in accident rates, which in turn could reduce the demand for refinish services. Additionally, the insurance industry is presenting its own set of challenges, such as increased auto insurance rates leading to more uninsured drivers and higher rates of vehicles being declared total losses, both of which negatively affect refinish volumes.
Despite these challenges, there are potential offsets that could help Axalta maintain its position. The company is expected to outperform the broader refinish industry through strategic moves such as gaining market share via Multi-Shop Operators (MSOs), leveraging technological advancements, and other initiatives. However, the overall outlook for Axalta’s refinish business remains flat, with risks leaning towards the downside. This situation raises questions about the company’s future capital allocation strategies, as the current trajectory may not meet investor expectations for long-term growth.