We issued an updated research report on The Sherwin-Williams Company SHW on Apr 7.
Sherwin-Williams is benefiting from favorable demand in its domestic end-use markets, focus on growth through expansion of operations and productivity improvement initiatives amid headwinds from soft non-domestic demand.
The paint giant’s shares have gained 4.4% over a year, compared with the 3.1% rise of its industry.
Sherwin-Williams is witnessing strong demand in its domestic end-use markets and remains committed to expand its retail operations. In the fourth quarter of 2019, it saw higher sales and profits in the Americas Group segment, primarily owing to increased paint sales volume across most end markets. The company is benefiting from sustained strength in architectural paint markets in North America.
The company is also focused on capturing a larger share of its end-markets, as reflected by an increasing number of retail stores. The company added 62 net new stores in 2019 in its Americas Group unit. It plans to add 80-100 new stores in 2020.
Moreover, Sherwin-Williams’ cost control initiatives, working capital reductions, supply chain optimization and productivity improvement are yielding margin benefits. Working capital management and efforts to cut operating costs are also helping the company to generate strong cash flows. It generated strong net operating cash flows of $2.32 billion in 2019. The company is also taking appropriate pricing actions, which is lending support to its margins.
The company is also gaining from synergies of the Valspar acquisition. It realized benefits worth around $315 million from synergies in 2019.
However, Sherwin-Williams is exposed to challenges from soft demand outside of the United States. The company witnessed relatively weaker demand in non-domestic regions during the last reported quarter, especially in Asia and Europe. It is seeing pressure on its industrial wood business in China.
Softness in sales outside North America hurt sales in its Performance Coatings Group segment in the fourth quarter. Industrial demand remains sluggish in non-domestic markets, which may continue to affect sales in this unit.
The Sherwin-Williams Company Price and Consensus
The Sherwin-Williams Company price-consensus-chart | The Sherwin-Williams Company Quote
Zacks Rank & Stocks to Consider
Sherwin-Williams currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks worth considering in the basic materials space are The Scotts Miracle-Gro Company SMG, NovaGold Resources Inc. NG and Newmont Corporation NEM.
Scotts Miracle-Gro has an expected earnings growth rate of 15.4% for the current fiscal year. The company’s shares have gained roughly 25% in the past year. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
NovaGold has a projected earnings growth rate of 11.1% for the current year. It currently carries a Zacks Rank #2. The company’s shares have surged roughly 98% in a year.
Newmont has a projected earnings growth rate of 90.2% for the current year. The company’s shares have rallied around 37% in a year. It currently has a Zacks Rank #2.
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