Valspar Upgraded to Outperform - Analyst Blog

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We upgrade our recommendation on The Valspar Corporation ( VAL ), the sixth largest paint and coatings manufacturer globally, with manufacturing operations all over the world including the U.S., Europe and Asia. The company takes coatings for the global industrial, packaging and architectural markets.

Valspar's net earnings moved to $0.84 per share in the fourth quarter of 2011 from last year's $0.56, exceeding the Zacks Consensus Estimate of $0.70. Sales jumped 19.4% year over year to $1.05 billion driven by new business efforts, pricing and productivity, offsetting rising raw material costs and challenging market conditions.

Over the past few quarters, Valspar has delivered solid earnings and robust margin gains. The improved results were attributable to dramatic raw material cost reduction along with increasing product prices, as well as aggressive cost reductions and productivity gains.

Though raw material costs continued their upward trend during the quarter, the company expects double-digit earnings growth in fiscal year 2012. The company is managing its cost well and maintaining a cost structure that is appropriate for the current external environment.

Valspar continues to make progress by way of winning new businesses. In 2010, the company completed the acquisition of Wattyl Limited, an Australian paint manufacturer, providing a strong brand portfolio in an excellent geography while diversifying the company's overall sales mix.

Additionally, the acquisition provides a supply chain to support its largest customer's entry into the Australian market. Valspar's fastest-growing markets are the emerging economies, such as China. The company witnessed strong growth in China including over 100 new warrant stores that opened during the third quarter. Overall winning new businesses is a company-wide focus that will position Valspar well for the future and help offset lower demand in core markets.

The company is making good progress in restoring its operating margins through pricing and improved productivity. Looking at 2012, the company continues to expect double-digit earnings growth in the range of $2.87 to $3.07 per share. Valspar expects sales to benefit from the diverse mix of businesses and growth in the fast growing coatings markets in Asia and Latin America.

We believe the company has a strong pipeline of new products and significant opportunities for share gains in both its Paint and Coatings segments globally. The company expects to benefit from its restructuring actions while maintaining its operational and pricing discipline.

We are more optimistic on Valspar's long-term performance, which is likely to be driven by volume increases in both the Paint and Coatings categories.

Valspar competes with the likes of Sherwin Williams Company ( SHW ) and PPG Industries Inc . ( PPG ).

Valspar holds a short-term Zacks #1 Rank (Strong Buy) on the stock.

PPG INDS INC ( PPG ): Free Stock Analysis Report

SHERWIN WILLIAM ( SHW ): Free Stock Analysis Report

VALSPAR CORP ( VAL ): 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 Nasdaq, Inc.

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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