Stock (Symbol)

Sherwin-Williams (SHW)

Stock Price

$285

Sector

Retail & Travel

Data is as of

March 14, 2016

Expected to Report

Apr 14 – Apr 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) has been rolling since 2012 behind a strong housing market. 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. Lately the stock has gotten help from low oil and titanium dioxide (white component) prices, but commodity prices are rising now and gross margins aren’t expected to expand as they had, thus estimates have declined slightly the past 2 qtrs. 80% of sales are domestic, but the company is still affected by the strong dollar. SHW has an estimated long-term growth rate of 18% plus pays a 1% yield. The P/E has risen from 19 last qtr to 23 today, and I no longer feel the stock is undervalued. Still, this is an excellent holding for conservative investors as profits are expected to climb 12% in 2016.

One Year Chart

Very quick comeback from the stock market selloff in January and February. Last qtr SHW beat earnings estimates of $1.88 by 24 cents — the best beat all year — as profit rose 55% due to easy comparisons in the year-ago period. Sales increased 1% for the qtr. Looking ahead, Estimates are for 16%, 11%, 11% and 14% profit growth the next 4 qtrs. With a P/E of 23 the stock is selling around its Fair Value, but investors have been appreciating solid conservative growth stocks so the stock could go higher.

Fair Value

SHW’s profits fell during the last recession, and that probably spooked investors during Jan/Feb as there were recession fears. But now the economy looks better, and those fears are behind us. Note the stock sold for 23-25 times earnings between 2013 and 2015. My Fair Value is 23x earnings which equates to a $288 stock this year and $325 next year. SHW also yields 1%.

Bottom Line

Sherwin-Williams is a 150 year old company that’s still growing strong. The company has lots of cash flow to do stock buybacks, acquisitions and pay a dividend that’s increased each year since the 70s. The stock also gets a top safety rating. This is a solid selection for conservative accounts and the stock ranks 13th in the 35 stock Conservative Growth Portfolio Power Rankings.