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Sherwin-Williams (SHW) Gains on Higher Demand, Expansion Moves

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The Sherwin-Williams Company (SHW - Free Report) is benefiting from strong demand in its end markets, pricing and cost-control initiatives and expansion of operations amid headwinds from raw material cost inflation.

Shares of Sherwin-Williams, a Zacks Rank #3 (Hold) stock, have lost 13.9% over the past year against the 13.6% decline of its industry.

 

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Sherwin-Williams is gaining from favorable demand in domestic markets. It is witnessing strong sales across professional contractor end markets, which is driving sales in the Americas Group segment. The company is benefiting from continued strength in residential repaint, commercial, property maintenance and new residential segments. It expects strong demand to continue in North American architectural end markets. Demand also remains solid in industrial end markets.

Sherwin-Williams’ cost-control initiatives, working capital reductions, supply chain optimization and productivity improvement are also expected to have provided margin benefits. It is also implementing pricing actions to offset cost inflation.

The company also remains committed toward expanding its retail operations. It is focused on capturing a larger share of its end-markets, as is evident from increasing number of retail stores. It expects to add 80-100 new stores in 2022.

Sherwin-Williams also has a strong liquidity position and is using its cash strategically. The company repurchased 1.45 million shares of its common stock in the first quarter. It had remaining authorization to repurchase 47.1 million shares through open market purchases at the end of the quarter.

However, the company faces headwinds from higher raw material costs. Raw material inflation had an impact on the company’s performance in the first quarter. Raw material availability negatively impacted all three segments, especially the Americas Group. The impacts of raw material cost inflation are likely to continue in the second quarter. The company sees input cost inflation of low-double-digit to mid-teens percentage this year. Sherwin-Williams is also seeing higher labor and transportation costs. Higher costs may exert pressure on the company’s earnings.

 

 

Stocks to Consider

Better-ranked stocks worth considering in the basic materials space include Albemarle Corporation (ALB - Free Report) , Cabot Corporation (CBT - Free Report) and Allegheny Technologies Inc. (ATI - Free Report) .

Albemarle has a projected earnings growth rate of 231.7% for the current year. The Zacks Consensus Estimate for ALB’s current-year earnings has been revised 112.4% upward in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

Albemarle’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 20%. ALB has rallied roughly 22% in a year. The company flaunts a Zacks Rank #1 (Strong Buy).

Cabot, currently carrying a Zacks Rank #1, has an expected earnings growth rate of 22.5% for the current fiscal year. The Zacks Consensus Estimate for CBT's earnings for the current fiscal has been revised 6% upward in the past 60 days.

Cabot’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 16.2%. CBT has gained around 13% over a year.

Allegheny has a projected earnings growth rate of 1,076.9% for the current year. The Zacks Consensus Estimate for ATI's current-year earnings has been revised 40.4% upward in the past 60 days.

Allegheny’s earnings beat the Zacks Consensus Estimate in the last four quarters. It has a trailing four-quarter earnings surprise of roughly 128.9%, on average. ATI has gained around 10% in a year and currently sports a Zacks Rank #1.