Stock (Symbol)

Sherwin-Williams (SHW)

Stock Price

$290

Sector

Retail & Travel

Data is as of

May 23, 2016

Expected to Report

Jul 14 – Jul 18

Company Description

SHW is engaged in the development, manufacture, distribution and sale of paint, coatings and related products. SHW’s segments include Paint Stores Group, Consumer Group, Global Finishes Group and Latin America Coatings Group. The Paint Stores Group markets and sells architectural paint and coatings, protective and marine products, original equipment manufacturer (OEM) product finishes. The Consumer Group develops, manufactures and distributes a range of paint, coatings and related products to third party customers. The Global Finishes Group develops, licenses, manufactures, distributes and sells a range of protective and marine products, automotive finishes and refinished products, and OEM product finishes, among others. The Latin America Coatings Group develops, manufactures, distributes and sells architectural paint and coatings, finishes, among others. Source: Thomson Financial

Sharek’s Take

Sherwin-Williams (SHW) continues to shine as people improve their homes. Founded in 1886, the company has the #1 brand in paint (Sherwin-Williams), stain (Minwax), spray pain (Krylon), auto paint (Dupli-Coloe) and water sealer (Thompson’s). It has an end-to-end supply chain with 62 manufacturing sites, 14 distribution centers, 400 trucks and 1200 trailers to get paint and other goods to home improvement centers and 4000 company stores. The company has strong cash flow due to little capital investment needs, thus management makes acquisitions in addition to stock buybacks that have reduced its share count 30% since 2007. The stock get’s a top safety rating and management has raised its dividend every year since 1979, from a penny to $2.68. Harvard University expects spending on remodeling and repairs to climb 9% this year, which is obviously helping paint sales. Last qtr SHW had 31% profit growth on just a 5% increase in sales as low oil and titanium dioxide (white component) prices helped profits. Profit growth is expected to moderate to 11% to 12% the next 4 qtrs, but the company just announced plans to acquire rival Valspar and that could boost results. Overall this is a safe stock with a solid business and an estimated long-term growth rate of 11% a year in addition to a 1% yield.

One Year Chart

Profit growth has been exceptional lately as commodity prices have been low. SHW has been beating the street pretty soundly lately, last qtr it beat the $1.60 estimate by 21 cents. But this hasn’t helped boost annual profit estimates as 2016’s number has stayed between $12.50 and $12.79 the last 4 qtrs. Looking ahead, profit estimates for the next 4 qtrs are 12%, 11%, 11% and 12%.

Fair Value

This stock has sold for around 23x earnings the past few years and I feel that’s a fair valuation. Investors do as well, because SHW’s selling for that now. So now the stock’s not undervalued, so what? According to my calculations the stock has 12% upside to my 2017 Fair Value. With the stock market having hung around the same area for 2-3 years now this seems to be a good investment.

Bottom Line

Sherwin-Williams is a 150 year old juggernaut that is a solid stock for conservative investments. The company is vertically integrated, buys back stock, makes acquisitions and pays a dividend. With home improvement continuing to grow the stock should remain timely for the year ahead. SHW ranks 10th in the 35 stock Conservative Growth Portfolio Power Rankings.