PPG INDUSTRIES INC (PPG) stock intrinsic value fair value estimate & owner earnings analysis

PPG makes paints, coatings and specialty materials. After selling its U.S. and Canada architectural paint business to American Industrial Partners in 2024 (for $516 million) and its silicas business, it reports three segments. In 2025 Industrial Coatings brought in $6.5 billion of sales (automotive OEM, general industrial, packaging and specialty products), Performance Coatings $5.5 billion (automotive refinish, aerospace, protective and marine, traffic solutions) and Global Architectural Coatings $3.8 billion (paint and stains sold in Europe, Latin America and Asia Pacific). Total sales were $15.9 billion, split roughly a third each between the United States and Canada and Europe/Middle East/Africa, with Asia Pacific at 18% and Latin America at 14%. Its products are consumables that are specified into customers' factories, aircraft programs and body shops. That makes demand recurring, but the business is cyclical with industrial production, and margins get squeezed whenever raw-material costs jump faster than prices can follow. How we measured earning power: we start from operating cash flow and strip out working-capital swings. We then deduct stock compensation and the capital spending needed to keep the business running. Capital spending tied to sales growth is treated as investment, not upkeep. Before subtracting debt we add back cash interest, so we value the whole business first and then take off what it owes. On that basis the business produced roughly $1.37 billion to $1.68 billion a year in 2017-2021, fell to $982 million in 2022, and then earned $1.62 billion in 2023, $1.40 billion in 2024 and $1.59 billion in 2025. The 2022 drop came from what the company called historically high raw-material cost inflation. We left out 2016 because a one-time $813 million payment into an asbestos settlement trust distorts it. Our starting level is the median of 2017-2025, about $1.445 billion, or $6.44 per share on 224.4 million diluted shares. That window covers a full cycle, including the 2020 pandemic dip and the 2022 cost squeeze. For the post-divestiture years alone (2022-2025) the median is about $1.50 billion, so the starting point is not flattering. Two accounting choices matter. First, PPG lifted capital spending to $721 million in 2024 and $778 million in 2025, against $300-520 million in earlier years. Sales were flat, so we count all of it as upkeep. That holds earnings down by roughly $250-300 million a year compared with the older spending pattern. The company says 2026 spending will be about $650-700 million to support future growth, but until that growth shows up we do not give credit for it. Second, the cash figures add back about $125 million a year of amortization of acquired intangibles and repeated impairment charges ($231 million in 2022, $160 million in 2023, $146 million in 2024). We do not reduce the earnings level for these. Instead, none of the cases credits any growth from acquisitions, and the central case holds cash flow flat in dollars, which means it shrinks after inflation. Growth check: business cash flow rose 13% in 2025. The central case starts year one at $1.445 billion, below 2025's level, and assumes no growth. Over 2017-2025 dollar cash flow grew only about 1% a year even though PPG spent about $4.9 billion on acquisitions in 2016-2021. Per-share gains came mostly from buybacks, so we see no proven organic growth to credit. Debt: at March 31, 2026 PPG owed about $7.14 billion and held $1.62 billion in cash and short-term investments. We treat about $500 million of that cash as needed to operate. Borrowing rose by about $1.5 billion in 2025 with new 2031 and 2032 notes. Most of the debt carries fixed coupons of about 1.2% to 4.4%, well below 6% for years, and we credit that at about $400 million. We also deduct about $270 million for outside partners' stakes in subsidiaries. Net, the business owes about $5.9 billion, or $26 per share. About $2.0 billion matures in 2028 (a euro term loan and the 3.75% notes). Even in the weak case, yearly cash flow before interest is about four times the roughly $240 million annual interest bill, so refinancing is not a threat to the equity in any case. Bear case, $51 per share: a repeat of the 2022 raw-material squeeze cuts cash flow to $1.0 billion next year and $1.15 billion the year after. It then settles at $1.25 billion and declines 1.5% a year, with a further 1% a year decline after year ten. This reflects shrinking European paint and industrial sales (European architectural sales fell from $2.41 billion in 2023 to $2.32 billion in 2025, and Industrial Coatings from $7.1 billion to $6.5 billion, partly through divestitures), plus continued write-offs. The business is worth about $17.4 billion against $5.9 billion owed. Base case, $81 per share: cash flow holds at about $1.445 billion a year in dollars, indefinitely. That rests on PPG's long record as one of the largest global coatings suppliers and on reported revenue that stayed between about $13.8 billion and $18.2 billion every year since 2016. In 2022-2023 it showed it can push through price increases after a cost spike. The business is worth about $24.1 billion against $5.9 billion owed. Bull case, $109 per share: cash flow runs at about $1.55 billion, close to the 2023 and 2025 levels. From 2028, once the current capacity projects are finished, spending falls back toward the company's own 2017-2023 range, adding about $150 million a year. Pricing then keeps dollar cash flow rising 1.5% a year for ten years, after which it is held flat. The business is worth about $30.3 billion against $5.9 billion owed. What would make this wrong: a lasting step-down in European demand or auto production, raw-material inflation that pricing cannot recover, or the elevated capital spending turning out to be permanent upkeep with no sales growth behind it (already assumed in the base and bear cases). On the upside, capacity spending that converts into sales growth is not credited outside the bull case. Margin-of-safety price, $48: PPG is a durable but cyclical business with a moderate spread between cases. At $48 the price sits just below the bear-case value. If the shares moved to the central value within about three years, the base case implies about 23% a year including the roughly $2.80 annual dividend. Over four years, it implies about 18%. The bull case is not needed to justify the price. What changed since our previous estimate (base $52, margin-of-safety price $34): we now apply the same 6% required return to every company and show risk through the gap between the bear and bull cases, rather than a higher rate for PPG. That raises all three values. At the same time we no longer assume any growth in the central case, where we previously assumed about 4% a year. We now value the business before debt and then subtract a debt figure adjusted for its low fixed coupons. Not fully reconciled: PPG's cash-flow statement includes an unexplained 'Other' line that swings widely (+$187 million in 2025, -$123 million in 2024). We kept it in earnings rather than treating it as working capital. Years before 2022 still include the divested U.S./Canada paint business, which the company did not restate. That business was a small share of cash flow in its final years.