Sherwin-Williams’ Profit Growth Has Simmered Down

Stock (Symbol)

Sherwin-Williams (SHW)

Stock Price


Retail & Travel
Data is as of
August 4, 2016
Expected to Report
Oct 27 – 31
Company Description
sherwinwilliams_insideSHW 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
David SharekSherwin-Williams’ (SHW) profit growth has simmered back down. This stock had been hot since breaking out at $90 in December 2011. A growing U.S. housing (remodeling) market helped push profits up 57%, 17%, 16% and most recently 27% from 2012-2015 as SHW stock soared to $260. Then this year the stock made it to $300 as profits continued to grow robustly. But last qtr the company delivered just 10% profit growth. Analysts predict just 12%profit  growth the next 4 qtrs, and 11% growth next year. That would be the slowest rate in 5 years. 11% is also the stock’s estimated long-term growth rate. Still, 11% is nothing to mock, and investors earn a 1% yield as well. 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.  The environment is still good as remodeling and repair spending could hit 9% this year. Recently acquired Valspar could also boost results. I continue to like this stock but feel its growth could simmer down.
One Year Chart
SHW_2016_Q3Really good profit growth earlier this year as the company was beating expectations. Last qtr’s growth not only slowed but the company misses estimates a little as well. Also, Annual Profit Estimates have been trending down slightly for much of the last year. Great stocks have estimate increases. With a P/E of 24 I feel this stock is where it should be.
Fair Value
SHW_2016_Q3_PHYears ago SHW used to earn a P/E in the mid-teens. Recently it’s shot up to between 23 to 25. Now that growth has slowed, the stock’s P/E could simmer down as well. My Fair Value P/E is 23 which is a stock price between $290 and $323. 
Bottom Line
SHW_2016_Q3_10yrSherwin-Williams is a 150 year old juggernaut that is a solid stock for conservative investors. 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 but growth could simmer down from prior years. SHW ranks 18th in the 38 stock Conservative Growth Portfolio Power Rankings.
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