Sherwin-Williams (SHW, Financial) recently posted strong results for the third quarter. The company impressed everyone with its strong performance in the domestic business, which showed good improvement in the top line and earnings. However, Sherwin-Williams' performance was not satisfactory in the non-domestic segment.
However, the company is seeing good growth in sales, which indicates good traction about its products and services in the market. It has already made several acquisitions that are meaningfully contributing to its net sales. However, Sherwin-Williams is worried about the decline in sales on the international front due to currency fluctuations.
How the segments performed
Its paint-store group is doing well, and has shown impressive improvement. To expand its presence in the market, it plans to open approximately 80 to 90 new stores at different locations. However, the company has already opened around 18 net new stores.
Sherwin-Williams’ consumer group is, however, moving slowly. But, it is seeing good operating margins. The acquisitions are also adding meaningfully its sales. In addition, the company is worried about the currency fluctuations that it is seeing. This has impacted its sales negatively. However, the global finishes groups’ domestic business is now showing some positive growth signs. But, the weakness prevailing in Latin America is expected to offset this improvement partially.
Sherwin-Williams is looking at ways to get over the weakness it is seeing within its Latin American coating groups. The market environment is challenging. But, regardless of the market condition, the company is hoping for a domestic housing recovery. It is seeing some positive trends in the end market. The company is expecting growth in the housing segment as housing starts are still growing at a healthy pace. Further, remodelling activity is picking up, which is also a good sign for Sherwin-Williams. Above all, the new square footage growth is positive in the market which is expected to benefit the company in a long run as well.
Besides that, many industrial coating markets have turned around and are now showing increasing strength. Sherwin-Williams is expecting to see this growth momentum in future with its revenue and earnings growth.
Conclusion
The stock looks reasonable with a trailing P/E of 28.32, while the forward P/E of 22.15 shows good earnings growth in the near term. However, in the next five years the company’s earnings are growing impressively with a CAGR of 15.27% which is marginally more than the industry average of 15.00%. In addition, the Comex acquisition is a strong move by the company and it is further expected to contribute well to the company in future helping it to gain much market share. Considering all these facts, Sherwin-Williams is a good pick as of now and the investors should definitely include it in their portfolio.
