Hook / Thesis
PPG Industries has underperformed in 2025: revenue and earnings in recent quarters came in below prior-year levels, and the stock reflects that disappointment. That said, the company remains a cash-producing leader in coatings with steady dividend policy, manageable leverage and visible operating cash flow — factors that argue for a tactical long into 2026 as end markets normalize and pricing/mix recover.
This note lays out a trade plan: a buy-on-weakness entry around current levels (~$103.90 as of 12/26/2025), a disciplined stop, and two staged upside targets tied to a return to more normal margins and revenue stabilization in 2026.
What PPG does and why the market should care
PPG is one of the world’s largest coatings producers, supplying automotive, aerospace, architectural and industrial customers across multiple regions. The combination of global scale and a diversified end-market mix gives PPG both cyclical exposure and durable cash generation when volumes and margins normalize. The market cares because coatings are both cyclical and margin-sensitive - modest swings in raw material costs, regional demand (construction, automotive), or currency can move the P&L meaningfully, and PPG’s size amplifies those shifts in reported results.
Fundamental snapshot (selected, recent quarters)
- Q3 FY2025 (period 07/01/2025-09/30/2025; file dated 10/29/2025): revenues $4,082m, operating income $689m, net income $447m; operating cash flow (continuing) $676m; long-term debt $7,303m; total assets $22,144m; equity $7,956m.
- Q2 FY2025 (period 04/01/2025-06/30/2025; file dated 07/30/2025): revenues $4,195m, operating income $743m, net income $458m; operating cash flow $387m.
- Comparison to 2024: Q3 FY2024 revenue was $4,575m — meaning Q3 FY2025 revenue declined roughly 10.7% year-over-year; operating income fell modestly (Q3 FY2024 operating income $712m vs $689m in Q3 FY2025) and net income also declined.
Put simply: top-line came under pressure in 2025, margins eased slightly, but PPG still generated strong quarterly operating cash flow (Q3 FY2025 operating cash flow continuing $676m) and continued to return cash to shareholders via dividends (most recent declared quarterly dividend $0.71; annualized roughly $2.78).
Why 2026 looks better — the case for a tactical long
My thesis is three-part: 1) 2025 weakness appears largely cyclical rather than structural — revenues declined but operating income only fell modestly, implying some margin resilience; 2) PPG’s cash flow profile is intact — Q3 FY2025 operating cash flow continued at $676m and the company’s investment outlays are moderate (Q3 FY2025 investing cash flow -$129m); and 3) the balance sheet remains serviceable with long-term debt of $7.303bn against equity of ~$7.956bn and total assets ~$22.144bn — leverage is meaningful but not off the charts.
That profile supports a buy-the-dip trade: if end-market demand stabilizes in 2026 (architecture and industrial paint demand recovers, automotive cycles firm), PPG should see revenue stabilization, benefit from operating leverage and deliver a multiple expansion versus 2025 depressed levels.
Valuation framing
Current snapshot price is $103.89 (12/26/2025). The dataset does not provide a market cap or consensus forward EPS in a single field, so I avoid printing an exact P/E. Two valuation anchors worth noting:
- Dividend yield: latest four declared quarterly dividends in 2025 sum roughly to $2.78 annually (0.68 + 0.68 + 0.71 + 0.71). At $103.89 that equates to an approximate yield of 2.7% — not a high-yield special but a sustainable cash return that steadies total-return expectations.
- Technical/price context: over the last 12 months PPG has traded roughly between mid-$90s and mid-$120s (52-week high in the dataset ~ $123.66; lows in 2025 near the low $90s). A sensible upside target is a re-test of the prior range highs if 2026 drivers materialize.
If I had market-cap and consensus EPS in-line, I would size this trade relative to expected 2026 EPS. Given the dataset constraints, this plan focuses on cashflow, leverage and dividend support rather than an exact multiple call.
The trade idea (actionable)
Trade direction: Long
Time horizon: Position (3-12 months, targeting recovery through 2026)
Risk level: Medium
Entry: 100.00 - 105.00 (scale in; prefer entering near the low end of the range)
Stop: 95.00 (technical stop; ~8-9% below the top of the entry band)
Target 1 (trim): 115.00 (near-term recovery, ~10% upside from entry mid-point)
Target 2 (trim/hold): 125.00 (re-test of recent 52-week highs, ~20%+ upside)
Position sizing: risk no more than 1-2% of portfolio value to the stop per position size
Rationale: the stop limits downside to a defined loss while allowing the trade to work if 2026 demand stabilizes and margins recover. The first target is a conservative re-rating; the second captures a fuller recovery toward the high end of the 12-month range.
Catalysts to monitor
- Q4 2025 / FY2025 results and management commentary (seasonal Q4 sales trends and FY2026 guidance) - look for signs of stabilization in architectural and industrial channels.
- Margin trajectory / cost pass-through - evidence that PPG is able to pass raw material inflation through or improve mix.
- FX and cross-border trends - exchange-gains/losses swung in prior quarters; a stable FX environment would be supportive (Q3 FY2025 exchange gains $21m vs prior quarters with meaningful negative items).
- Dividend consistency - continued quarterly dividend declarations (recent payment cadence: 11/10/2025 ex-dividend with pay date 12/12/2025) and buyback commentary would reduce downside risk and support valuation.
Risks and counterarguments
Below I list principal risks that could invalidate the trade plus one explicit counterargument to the bullish case.
- Sustained demand weakness: if end markets (commercial construction, industrial maintenance, auto OEM refinish) remain soft into 2026, revenues may continue to decline and margins will compress further. The dataset shows clear revenue declines in 2025 (Q3 FY2025 revenues $4,082m vs Q3 FY2024 $4,575m), so a longer downturn is possible.
- Margin pressure from raw materials or competitive pricing: coatings are input-sensitive. If resin, pigment or energy costs spike and PPG cannot fully pass through increases, operating income will suffer. Operating income fell from $712m (Q3 FY2024) to $689m (Q3 FY2025) despite large revenue drops, showing margin sensitivity.
- Currency volatility: FX has materially affected prior quarters (Q3 FY2024 and other periods show negative exchange impacts at times). Continued adverse FX could depress reported results and cash flow.
- Balance sheet risk if cash flow deteriorates: long-term debt was $7.303bn in Q3 FY2025. If cash generation weakens, leverage metrics could deteriorate and force more conservative capital returns or costlier refinancing.
- Management execution / integration risk: acquisitions and regional expansions (e.g., recent Comex acquisition referenced by the company historically) can create integration drag or unexpected costs; management commentary in upcoming quarters matters.
Counterargument: The market may already be pricing in a multi-quarter slowdown; if investors have fully discounted a prolonged softer 2026, upside from current levels may be limited and waiting for explicit signs of demand recovery before adding risk may be superior to entering now. In other words, the risk/reward is not guaranteed — patience for early 2026 data could be warranted.
What would change my mind
I would cut the thesis (move to neutral or short) if any of the following occur:
- Management issues guidance that 2026 will be weaker than market expectations or explicitly signals structural demand deterioration in key end markets.
- Sustained quarterly cash flow deterioration: operating cash flow falls materially below the quarterly run-rate shown in 2025 (e.g., several quarters < $200m), combined with rising investing outlays or sustained negative free cash flow.
- Dividend reduction or pause — that would signal stress in returns or capital allocation priorities.
- Meaningful adverse change in leverage metrics driven by acquisitions or surprise impairments that reduce equity and increase net debt materially beyond the ~7.3bn long-term debt level.
Bottom line
PPG’s 2025 was soft on the topline, but core cash generation and a solid dividend policy provide a defensive floor. Using a disciplined entry (100-105), a tight stop (95) and staged profit-taking at 115 and 125 creates a risk-managed way to own the company into the expected 2026 recovery. This is not a no-risk trade — watch demand trends, margin progress and cash flow closely. If those items swing the wrong way, exit to the stop and reassess.
Key data points referenced above come from the company’s most recent quarterly financial statements (periods ending 09/30/2025 and 06/30/2025, filed 10/29/2025 and 07/30/2025 respectively).
Trade checklist (quick)
- Enter: 100-105 — scale in, do not over-commit.
- Stop: 95 — strict discipline to cap losses.
- Targets: 115 (trim) / 125 (trim/hold) — re-rate as 2026 data arrives.
- Monitor: quarterly revenue trends, operating income, operating cash flow, FX commentary, dividend guidance, and leverage metrics.