Shares of The Sherwin-Williams Company SHW scaled a fresh 52-week high of $459.00 on Aug 31, before closing the day at $455.58.
Sherwin-Williams has a market cap of roughly $42.3 billion. Average volume of shares traded in the last three months is around 598.4K. The company has an expected long-term EPS growth of 11.9%.
Driving Factors
An impressive second quarter, strength in all segments, upbeat outlook stemming from the Valspar buyout along with efforts to cut costs have contributed to the rally in Sherwin-Williams' shares.
In the second quarter, Sherwin-Williams' adjusted earnings were $5.73. The figure surpassed the Zacks Consensus Estimate of $5.59. Including one-time items, earnings jumped 26.5% year over year to $4.25 per share. Revenues rose roughly 28% year over year to $4,774 million in the quarter, outpacing the Zacks Consensus Estimate of $4,712 million.
In the Americas group, unit net sales rose year over year in the quarter driven by increased architectural paint sales volume across most end markets and higher selling prices. Net sales at the Consumer Brands Group and Performance coatings group surged year over year on Valspar sales and higher pricing.
For 2018, Sherwin-Williams projects high teens to low 20s percentage increase in net sales from 2017. At this level, the company expects earnings per share for the year at $15.00-$15.20. The guidance includes a $3.80-$3.90 per share charge related to the Valspar acquisition. The company’s adjusted earnings per share guidance for 2018 is at $19.05-$19.35.
Sherwin-Williams’ aggressive cost-control initiatives, working capital reductions, supply chain optimization and productivity improvement are likely to boost margins. Working capital management and efforts to cut operating costs are also helping the company generate healthy cash flow.
The Valspar acquisition also enables Sherwin-Williams to strengthen its position as a leading paints and coatings provider globally, leveraging highly complementary offerings, strong brands and technologies. The buyout extends Sherwin-Williams’ brand portfolio and customer relationships in North America and bolsters its global finish business. Sherwin-Williams expects $320 million in annual run-rate synergies by the end of 2018, which is expected to drive its bottom line by $140-$160 million.
Shares of Sherwin-Williams have gained 17.8% in the last three months, underperforming the industry’s 20.5% increase.
Zacks Rank & Stocks to Consider
Sherwin-Williams is a Zacks Rank #3 (Hold) stock.
Some better-ranked companies in the Basic Materials space are Ingevity Corporation NGVT, Celanese Corporation CE and Air Products and Chemicals, Inc. APD.
Ingevity has an expected long-term earnings growth rate of 12% and a Zacks Rank #1 (Strong Buy). Shares of the company have gained 30% in the last three months. 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% and carries a Zacks Rank #1. The stock has gained 1.3% in the last three months.
Air Products has an expected long-term earnings growth rate of 16.2% and a Zacks Rank #2 (Buy). The stock has risen 1.7% in the last three
months.
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