Sherwin-Williams Gains On Valspar Buyout & Expansion Moves

We issued an updated research report on The Sherwin-Williams Company (NYSE:SHW) on Dec 31, 2018.

Sherwin-Williams has underperformed the industry it belongs to over the past year. The company’s shares have moved down 5.3% over this period compared with the industry’s decline of 2.7%.

Sherwin-Williams, during its third-quarter call, narrowed its adjusted earnings per share guidance for 2018 to $19.05 to $19.20 factoring in incremental supply chain costs. The company also said that it expects mid-single digit percentage increase in net sales year over year for fourth-quarter 2018.

Sherwin-Williams is gaining from synergies from the Valspar acquisition. The company is also focused on growth through expansion of retail operations. It is also benefiting from its actions to cut operating costs.

The Valspar acquisition has enabled Sherwin-Williams to strengthen its position as a leading paints and coatings provider globally, leveraging highly complementary offerings, strong brands and technologies. The company should gain from significant acquisition synergies. The company expected to achieve $320 million in annual run-rate synergies by the end of 2018, which is expected to contribute $140-$160 million to its bottom line.

Moreover, Sherwin-Williams is seeing favorable demand for coatings in most domestic markets and committed to expand its retail operations. It is focused on capturing a larger share of its end-markets, as reflected by an increasing number of retail stores.

Sherwin-Williams’ productivity improvement initiatives, working capital reductions and supply chain optimization should yield margin benefits. Working capital management and efforts to cut operating costs are also helping the company to generate healthy cash flows. Sherwin-Williams is also taking appropriate actions in the wake of raw material cost inflation.

The Zacks Consensus Estimate for Sherwin-Williams’ 2019 earnings is currently pegged at $22.21, reflecting year-over-year growth of 16.3%. The company also has an expected long-term EPS growth rate of 12.8%, higher than the industry average of 12.2%.

The Sherwin-Williams Company Price and Consensus

Zacks Rank & Other Stocks to Consider

Sherwin-Williams currently carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the basic materials space are Ingevity Corporation (NYSE:NGVT) , The Mosaic Company (NYSE:MOS) and Israel Chemicals Ltd. (NYSE:ICL) , all carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ingevity has an expected long-term earnings growth rate of 12%. The company’s shares have gained 18.7% in the past year.

Mosaic has an expected long-term earnings growth rate of 7%. The company’s shares have moved up 10.6% in the past year.

Israel Chemicals has expected long-term earnings growth rate of 9.5%. Its shares have rallied 38.7% in a year’s time.

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