Still Neutral on Sherwin-Williams - Analyst Blog

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We have maintained our Neutral recommendation on Sherwin-Williams ( SHW ) following our assessment of its first-quarter 2013 results, reported on Apr 18. We maintain a cautious stance factoring in currency headwinds, raw material pricing pressure and sustained weakness across some of its key end markets.

Why Retained?

Sherwin-Williams' first quarter earnings topped the Zacks Consensus Estimate while sales met. Revenues improved modestly as higher paint sales volume coupled with the positive impact of acquisitions was masked by unfavorable currency impact. Higher architectural paint sales led to an increase in revenues in the Paint Stores Group division.

Sherwin-Williams, which is among the major paint companies along with Akzo Nobel NV ( AKZOY ), follows a strategy of growth through acquisitions and internal initiatives such as efficient working capital management and innovation. Its philosophy is to diversify its customer base and expand its operations into various geographies.

The company continues to invest in its Paint Stores Group segment to boost market share. It is also implementing effective pricing strategies to offset higher raw material costs.

Moreover, the $2.34 billion acquisition of Consorcio Comex S.A. de C.V. should usher in significant opportunity. The acquisition (expected to complete in second-quarter 2013) will enable Sherwin-Williams to expand its architectural paint business in the Americas.

Sherwin-Williams also remains committed to deliver incremental returns to shareholders. The company, in Feb 2013, raised its quarterly dividend by 28% to 50 cents per share.

However, Sherwin-Williams remains exposed to currency headwinds. The company's Latin American operations are facing soft end-market demand and unfavorable currency translation impact.

Sherwin-Williams' consumer and paint stores businesses still remain impacted by the U.S. economic weakness. We do not expect a material near-term recovery in the housing and commercial construction markets.

Moreover, Sherwin-Williams continues to contend with volatility in raw material costs, primarily for acrylic latex, propylene and titanium dioxide (a key paint pigment).

Other Stocks to Consider

Other specialty chemicals companies with favorable Zacks Rank are Minerals Technologies Inc. ( MTX ) and Prospect Global Resources, Inc. ( PGRX ). Both hold a Zacks Rank #2 (Buy).



AKZO NOBEL NV (AKZOY): Free Stock Analysis Report

MINERAL TECH (MTX): Free Stock Analysis Report

PROSPECT GLOBAL (PGRX): Free Stock Analysis Report

SHERWIN WILLIAM (SHW): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AKZOY , MTX , PGRX , SHW

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