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Axalta has the widest profit margins of the coatings group and is the leading global player in the refinish niche of the industry.

Courtesy of Axalta Coating Systems

Coatings. The world is covered in them. Paints, auto finishes, industrial coatings, and more are a little-thought-of but necessary ingredient of millions of products and processes that improve performance, protect against the elements, and add a bit of shine.

It’s a concentrated industry, with

Axalta Coating Systems

(ticker: AXTA),

PPG Industries

(PPG), Japan’s

Nippon Paint Holdings

(4612.Tokyo), and Europe’s

Akzo Nobel

(AKZA.Amsterdam) controlling a dominant share of global sales. Axalta has the widest profit margins of the group and is the leading global player in the refinish niche of the industry—the largest of its four segments. The company says that 90% of its sales come from markets where it’s either the No. 1 or 2 player.

Management has some aggressive expansion plans and sees growth accelerating in the coming years. “Axalta is really in a new dawn,” CEO Robert Bryant tells Barron’s.

There’s both a short-term and a long-term element to that pronouncement. In the coming months and quarters, the global economic rebound from Covid-19 will drive Axalta’s business. As people get back to the office, school, and travel, they’ll drive more. That means more fender-benders and daily wear and tear on vehicles, plus rebounding auto and truck sales—and thereby more need for Axalta’s transportation-related paints. It could take a few years for that pent-up demand to be satisfied, and chip shortages might delay sales. But Axalta will benefit nonetheless.

And given the relatively small number of coatings suppliers, the industry has pricing power. That’s a strength in an inflationary environment when Axalta’s raw materials costs are going up, as Bryant points out.

In the longer term, Axalta sees itself both entering new areas and expanding its reach in existing ones. At an investor day in early May, management laid out a 9% to 10% annual sales-growth target through 2024, with about half coming from organic growth and half from mergers and acquisitions. In particular, Bryant points to consolidation opportunities in industrial coatings, which is a more fragmented market worth about $65 billion globally.

Analysts are bullish on Axalta’s potential growth. Close to 80% rate the stock at Buy, with their average price target about 20% above the shares’ recent $32.44.

Write to Nicholas Jasinski at nicholas.jasinski@barrons.com

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