Is Sherwin-Williams a Good Investment Despite Headwinds?

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Oct 24, 2014
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Sherwin-Williams (SHW, Financial) is pleased with the momentum that it is seeing in its business. The company is confident of reaching new highs, and with consolidated sales growth, Sherwin Williams is confident of delivering improvements in its underlying business. It is counting on domestic spray equipment sales to increase.

Not all is rosy

However, there are some challenges that Sherwin Williams must deal with. It has already seen the high cost of plastic packaging due to the pressure that came in on industry raw material basket from high density polyethene. Sherwin Williams is also worried about the high pricing trends in other raw material feed stocks such as crude oil, natural gas, propylene, ethylene and tinplate. But the company is focusing on various aspects to improve its profitability and to maintain an impressive outlook for a relatively stable raw basket for the rest of the fiscal year.

But there are other key areas where Sherwin William may explore. It is keeping its eyes focused on domestic buildings and remodeling markets. These are growing at an impressive pace and are showing positive signs. Sherwin Williams thinks that non-residential market will play a key role in driving the demand for paint and coating in the future. In addition, there are some other industrial segments that are showing positive growth momentum. However, the company might face a soft third quarter due to the ongoing challenges in Latin America.

Growth in the cards

The growth graph of Sherwin Williams is commendable. The company wants to keep this momentum rolling. The company opened about 16 new stores, which brought the total count of the stores in Canada, U.S and Caribbean to 3,941. To expand its footprint further, Sherwin Williams is planning to open about 80-90 new store locations.

Consumer group also plays an important role in the contribution to the Sherwin Williams. It has led to a solid 10.1% increase in the sales, which is commendable. The company is working on improving the operating efficiencies which is expected to drive the sales volume higher, delivering a good profit contribution in the future.

Conclusion

The company's balance sheet is impressive and can attract many investors. This will be a key reason for Sherwin Williams gaining market share. It can be a good investment option with debt levels of just $1.69 billion. With a trailing P/E of 29.10, Sherwin Williams is reasonable and the forward P/E of 21.06 is also showing positive signs of good earnings growth.

In the next five years, the company’s earnings are expected to increase at a CAGR of 14.67%, which is head-to-head with the industry average. Considering all these facts, I would like to suggest that investment in Sherwin Williams is worth your money and it can also be a good long term holding.