Sherwin-Williams' (SHW) Shares Rise 34% YTD: Here's Why

The Sherwin-Williams Company's SHW shares have rallied around 34% year to date. The company has also outperformed its industry’s rise of roughly 31% to over the same time frame. The stock is also up around 22% over the past three months.

Sherwin-Williams, a Zacks Rank #3 (Hold) stock, has a market cap of roughly $48.8 billion and average volume of shares traded in the last three months is around 542.7K. The company has an expected long-term earnings per share growth of 12.1%.


Let’s take a look into the factors that are driving this paints and coatings giant.

Driving Factors

Better-than-expected earnings performance in the second quarter and upbeat prospects have contributed to the run up in Sherwin-Williams' shares.

Sherwin-Williams logged earnings (as reported) of $5.03 per share in the second quarter, up around 18% from $4.25 a year ago. Adjusted earnings of $6.57 per share for the quarter surpassed the Zacks Consensus Estimate of $6.35. The company gained from higher paint sales volume across all end markets in North American stores as well as higher selling prices.

The company reaffirmed adjusted earnings per share guidance in the range of $20.40-$21.40 for 2019. It sees low single digit percentage increase in net sales year over year for third-quarter 2019. For the full-year, Sherwin-Williams expects 2-4% increase in net sales from 2018. The company is optimistic about North American stores volumes in the second half of 2019.

Sherwin-Williams is benefiting from its focus on growth through expansion of operations, its productivity improvement initiatives and synergies of the Valspar acquisition.

Sherwin-Williams is seeing favorable demand in its domestic end-use markets and remains committed to expand its retail operations. It is focused on capturing a larger share of its end-markets, as reflected by an increasing number of retail stores. Sherwin-Williams added 20 net new stores in the first six months of 2019. Plans are in place to add around 80-100 net new stores in North America by the end of this year.

The Valspar acquisition has also enabled Sherwin-Williams to strengthen its position as a leading paints and coatings provider globally, leveraging highly complementary offerings, strong brands and technologies. The company is gaining from significant acquisition synergies. Sherwin-Williams expects incremental synergies of roughly $70-$80 million in 2019, with total annual run rate of around $415 million at the end of the year.

Moreover, Sherwin-Williams’ cost control initiatives, working capital reductions, supply chain optimization and productivity improvement are also yielding margin benefits. Working capital management and efforts to cut operating costs are also helping the company to generate strong cash flows. The company is also taking appropriate pricing actions, which is lending support to its margins.

Earnings estimates for Sherwin-Williams for 2019 have also moved north over the past month. Over this period, the Zacks Consensus Estimate for 2019 has increased by around 0.6% to $21.10. The Zacks Consensus Estimate for earnings for 2019 reflects an expected year-over-year growth of 13.9%.

The Sherwin-Williams Company Price and Consensus


The Sherwin-Williams Company Price and Consensus

The Sherwin-Williams Company price-consensus-chart | The Sherwin-Williams Company Quote

Stocks Worth a Look

A few better-ranked stocks in the construction space include MasTec, Inc. MTZ, North American Construction Group Ltd. NOA and Great Lakes Dredge & Dock Corporation GLDD.

MasTec has an expected earnings growth rate of 32.4% for the current year and carries a Zacks Rank #1 (Strong Buy). The company’s shares have gained around 41% over the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

North American Construction has an expected earnings growth rate of 228.6% for the current year and carries a Zacks Rank #1. Its shares have rallied roughly 59% in the past year.

Great Lakes Dredge & Dock has an expected earnings growth rate of 323.5% for the current year and carries a Zacks Rank #2 (Buy). Its shares have surged around 92% in the past year.

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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 Nasdaq, Inc.

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