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Sherwin-Williams (SHW) Stock Up 33% in a Year: Here’s Why


The Sherwin-Williams Company's SHW shares have rallied around 33% over a year. The company has also outperformed its industry’s rise of roughly 32% to over the same time frame. The stock is also up around 14% year to date.

Sherwin-Williams, a Zacks Rank #3 (Hold) stock, has a market cap of roughly $43.4 billion and average volume of shares traded in the last three months is around 598.4K. The company has an expected long-term earnings per share growth of 11.9%, higher than the industry average of 10.4%.

Let’s take a look into the factors that are driving this paints and coatings giant.

Driving Factors

Better-than-expected earnings performance in the last two quarters, buoyant outlook and upbeat prospects stemming from the Valspar buyout have contributed to the run up in Sherwin-Williams' shares.

Sherwin-Williams topped earnings and revenue expectations in the second quarter. The company’s results were driven by the addition of Valspar sales, higher selling prices and increased paint sales volumes in the Americas Group unit. It also saw strong demand across most of its end-markets.

Notably, Sherwin-Williams has topped the Zacks Consensus Estimate in three of the four trailing quarters, delivering an average positive earnings surprise of 2.5%.

Sherwin-Williams, in its second-quarter call, said that it sees mid-to-high single digit percentage increase in net sales year over year for third-quarter 2018.

For full-year 2018, Sherwin-Williams projects high teens to low twenty percentage increase in net sales from 2017. At this level, the company expects earnings per share for the year to be in the range of $15.00-$15.20 per share. The company also raised its adjusted earnings per share guidance for 2018 to $19.05-$19.35 from its earlier view of $18.35-$18.95. The company expects favorable demand trends across most businesses and geographies to support its growth expectations.

Earnings estimates for Sherwin-Williams have also moved north over the past two months. Over this period, the Zacks Consensus Estimate for 2018 has increased by around 3% to $19.30. The Zacks Consensus Estimate for third-quarter 2018 has also moved up 1.9% over the same timeframe to $5.77.

The Zacks Consensus Estimate for earnings for 2018 reflects an expected year-over-year growth of 35.3%. For the third quarter, earnings are expected to rise 21.5% year over year.

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

Moreover, addition of Valspar-related sales should continue to boost the company’s top line. 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. Sherwin-Williams should gain from significant synergies of the acquisition. Sherwin-Williams expects to achieve $320 million in annual run-rate synergies by the end of 2018, which is expected to provide a benefit of $140-$160 million to its bottom line.

The Sherwin-Williams Company Price and Consensus

The Sherwin-Williams Company Price and Consensus | The Sherwin-Williams Company Quote

Stocks to Consider

Stocks worth considering in the basic materials space include Celanese Corporation CE, Ingevity Corporation NGVT and Huntsman Corporation HUN, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Celanese has an expected long-term earnings growth rate of 10%. The company’s shares have gained around 15% in a year.

Ingevity has an expected long-term earnings growth rate of 12%. The company’s shares have rallied around 64% in a year.

Huntsman has an expected long-term earnings growth rate of 8.5%. Its shares have gained roughly 4% over a year.

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