Bull Of The Day: Sherwin Williams

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Sherwin-Williams (SHW)  is a Zacks Rank #1 (Strong Buy) that engages in the manufacture, distribution, and sale of paints, coating, and related products to professional, industrial, commercial, and retail customers.

The stock has hit 2023 highs after struggling for much of 2022. Positive earnings momentum has investors hopeful that the stock can continue higher and set new all-time highs for the first time since 2021.


About the Company

Sherwin-Williams was founded in 1866 and headquartered in Cleveland, OH.  The company operates through three segments: The Americas Group, Consumer Brands Group, and Performance Coatings Group. 

The stock has a Zacks Style Score of “A” in Momentum, but “D” in Value. The valuation is an issue for some investors as its PE is over 30.

Sherwin-Williams currently employs over 60,000 and has a market cap of $70 billion. It pays a small dividend of 0.9%.


Q4 Earnings Beat

The company recently reported an earnings beat of 21%. This was the fourth straight EPS beat, and the seventh upside surprise out of the last ten quarters.

The company saw EPS of $3.29 v the $2.71 expected. Revenues came in at $6.24B, which was better than the expected $6.02B. Adjusted EBITDA was up 31.4% y/y and margins were 20.6%. The Consumer Brands Group revenue was higher by 5.1% y/y, while U.S. and Canada net sales were higher by 9.5%.

FY23 was raised to a range of $9.30-9.70 vs the $8.75 expected.

Management cited a year-over-year gross margin improvement of 46% as the reason for the positive earnings report. Strong sales volume combined with moderating raw materials costs helped bottom-line results.


Analyst Estimates

Looking at analyst estimates since earnings, we see numbers going slightly higher across all time frames.  

Over the last 7 days, estimates for the current quarter have gone from $2.54 to $2.55. For the next quarter, we see a similar tick higher, with estimates going from $1.42 to $1.43.  

Looking at the bigger picture, next year’s estimates have gone from $10.05 to $10.21 over the last 30 days. This move of 1.5% is not huge but is trending in the right direction after a period of falling estimates.

In addition to hiking estimates, analysts were quick to lift their price targets for SHW. Wells Fargo reiterated its Equal Weight but lifted its target from $275 to $300. Goldman Sachs reiterated their Buy rating and raised targets to $314 from $275. RBC reiterated its Outperform and lifted from $272 to $315.


The Technicals

The stock rallied over 200% after the COVID crash as work from home was a tailwind for paint-related products. After business slowed in 2022, the stock pulled back over 40%.

The low of the pullback lined up perfectly with a 61.8% retracement and after a double bottom test of that support, the stock accelerated higher to 2023 highs.

Since early June, the stock has been above the 200-day MA and the 21-day MA has supported every down move since.

Those looking to get into the stock should target the moving averages. The 21-day is currently at $264, the 50-day at $249, and the 200-day at $235.


Bottom Line

Sherwin-Williams is a steady company that has gotten its earnings momentum back on track.

On the fundamental side, positive earnings beats should continue due to management’s ability to improve margins. On the technical side, the bulls are in full control and any dip should be targeted for a potential long-term move to all-time highs.

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