Stock (Symbol)

Sherwin-Williams (SHW)

Stock Price

$333

Sector

Retail & Travel

Data is as of

August 8, 2017

Expected to Report

Oct 23

Company Description

SHW is engaged in the development, manufacture, distribution and sale of paint, coatings and related products. The Paint Stores Group markets and sells architectural paint and coatings, protective and marine products, original equipment manufacturer (OEM) product finishes. The Consumer Group distributes a range of paint, coatings and related products to third party customers. The Global Finishes Group distributes a range of protective and marine products and automotive finishes. Source: Thomson Financial

Sharek’s Take

Sherwin-Williams’ (SHW) has closed on its acquisition of Valspar on June 1, and now with the deal done profit estimates have soared. 2017, 2018 and 2019 profit growth estimates just jumped from 13%, 10% and 8% to 20%, 19% and 14% respectively. SHW is paying all cash for the fifth largest North American manufacturer of paints and coatings. But Sherwin-Williams has temporarily suspended stock buybacks to pay for the deal. Founded in 1886, Sherwin-Williams has the #1 brand in paint (Sherwin-Williams), stain (Minwax), spray pain (Krylon), auto paint (Dupli-Color) and water sealer (Thompson’s). It’s has a marvelous 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 4207 company stores. The company has strong cash flow due to little capital investment needs, thus management pays a dividend, makes acquisitions, and has made stock buybacks that reduced its share count 30% since 2007. Management has raised its dividend every year since 1979, from a penny to $3.40. Still, the yield is only 1%. Sherwin-Williams could grow profits 20% this year and next, and with a P/E of 22 the stock’s a good buy here. But since the Est. LTG is just 12%, this stock is part of the Conservative Growth Portfolio but not the Growth Portfolio.

One Year Chart

Last qtr SHW delivered profit growth of 11% sa sales increased 16%. Excluding Valspar, sales rose 4%. Same store sales rose 5% — a solid number. The company missed analyst estimates by a tiny amount and had lots of acquisition costs. Qtrly growth is expected to clock in at 17%, 24%, 37% and 15% the next 4 qtrs — outstanding. The Est. LTG is 12% which I feel is great for a Blue Chip stock such as this. P/E of 22 is good as profits are expected to grow 20% the next year or two.

Fair Value

My Fair Value on SHW is 23x earnings, which leaves the stock a little undervalued now with solid upside into 2018. I can easily see this stock above $400 next year. Also, managment might beat these estimates, which often happens after a big acquisition.

Bottom Line

Sherwin-Williams just completed its 150th year in business, and Valspar should help profits growing strong. I love how this company is constructed with it’s vertical integration and long history of success growing profits, the stock, and the dividend. With profits perhaps growing 20% this year and next, there’s good upside for these shares. SHW ranks 5th in the Conservative Growth Portfolio Power Rankings.