Why You Should Hold on to Sherwin-Williams (SHW) Stock Now
The Sherwin-Williams Company SHW is benefiting from strong momentum in its Paint Stores Group segment, pricing and cost-management actions and expansion of operations amid a challenging demand environment.
Shares of Sherwin-Williams have gained 9.9% over the past year, outperforming the 7.7% rise of its industry.
Image Source: Zacks Investment Research
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
Cost and Expansion Actions Aid SHW
Sherwin-Williams is witnessing strong domestic demand and is expanding its retail business. Auto refinishing demand is stable, with sales increasing by a mid-single-digit percentage in the latest reported quarter. As evidenced by the growing number of retail stores, the company remains focused on capturing a larger share of its end markets. In the first nine months of 2023, Paint Stores Group added 36 net new stores, including 16 in the third quarter. Paint Stores Group sales increased 3.6% in the third quarter due to consistent effective pricing. The segment margin increased by 420 basis points to 25.9%.
The cost-cutting initiatives, supply chain optimization and productivity improvements implemented by Sherwin-Williams should continue to generate margin benefits. Efforts to reduce operational expenses enabled the company to produce significant net cash flows from operations of around $1.9 billion in 2022. In addition, strong cash generation enabled the company to return $1.41 billion to shareholders in dividends and share repurchases during the first nine months of 2023.
The company is also focusing on restructuring, which will provide benefits in 2023. Consumer Brands Group, Performance Coatings Group and corporate business are the focal areas for this restructuring effort.
Sherwin-Williams strengthened its position as the global leader in paints and coatings by acquiring Valspar and leveraging its highly complementary offerings, powerful brands and revolutionary technology. As a result of this buyout, SHW's brand portfolio and client base in North America have expanded, and the company's worldwide finish business has been strengthened. The acquisition expanded the company's global footprint to include Asia-Pacific, Europe, the Middle East and Africa, as well as new packaging and coil capabilities.
The company increased its net income per share forecast for fiscal 2023. It expects full-year net income per share to be in the $9.21 to $9.41 range, up from $8.46-$8.86 previously projected. This includes an acquisition-related amortization expense of 80 cents per share and a net expense of 9 cents per share due to the Restructuring Plan. Full-year 2023 adjusted net income per share is now forecast to be in the range of $10.10 to $10.3, up from $9.30 to $9.70 expected earlier.
Demand Softness Ails
The company is exposed to a challenging demand environment. Demand has softened in Europe due to the sluggish macroeconomic environment. Moreover, the lack of meaningful recovery in China following the lifting of pandemic-led restrictions is also affecting demand. SHW is witnessing weak demand in new residential and the Consumer Brands Group DIY. The challenging demand environment is likely to persist in the fourth quarter of 2023.
The Sherwin-Williams Company Price and Consensus
The Sherwin-Williams Company price-consensus-chart | The Sherwin-Williams Company Quote
Stocks to Consider
Better-ranked stocks in the basic materials space include Denison Mines Corp. DNN, Axalta Coating Systems Ltd. AXTA and The Andersons Inc. ANDE.
Denison Mines has a projected earnings growth rate of 100% for the current year. It currently carries a Zacks Rank #1 (Strong Buy). DNN delivered a trailing four-quarter earnings surprise of roughly 225%, on average. The stock is up around 52.9% in a year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Axalta has a projected earnings growth rate of 5.4% for the current year. It currently carries a Zacks Rank #1. AXTA delivered a trailing four-quarter earnings surprise of roughly 6.7%, on average. The stock is up around 15.7% in a year.
Andersons currently carries a Zacks Rank #2 (Buy). The stock has gained roughly 36.5% in the past year. ANDE beat the Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 64.4%, on average.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
The Andersons, Inc. (ANDE) : Free Stock Analysis Report
The Sherwin-Williams Company (SHW) : Free Stock Analysis Report
Denison Mine Corp (DNN) : Free Stock Analysis Report
Axalta Coating Systems Ltd. (AXTA) : Free Stock Analysis Report
