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Here's Why You Should Hold Onto Sherwin-Williams for Now
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The Sherwin-Williams Company (SHW - Free Report) is benefiting from favorable demand in its domestic end-use markets, focus on growth through expansion of operations and productivity improvement initiatives amid headwinds from input cost inflation and soft non-domestic demand.
The paints and coatings giant’s shares are down 17.9% over a year, compared with the 15% decline of its industry.
Image Source: Zacks Investment Research
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Aiding the Stock?
Sherwin-Williams is gaining from favorable demand in domestic markets. It is witnessing strong architectural sales volumes, which is driving sales in the Americas Group segment. It saw strong demand in the third quarter of 2022 across all professional architectural markets in the Americas Group.
The company, in its third-quarter call, said that it sees the strong positive results to continue into the fourth quarter. This is projected to be driven by sustained momentum in the Americas Group and industrial end markets in North America, continued price realization, good cost control and softer year-over-year comparisons. It expects consolidated net sales to increase high-single to low-double digit percentage year over year in the fourth quarter.
Sherwin-Williams’ cost-control initiatives, working capital reductions, supply chain optimization and productivity improvement are also expected to provide margin benefits. It is also implementing pricing actions to offset cost inflation, especially in raw materials.
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 added 32 net new stores through the first three quarters of 2022 and expects to add 40-50 new stores in the fourth quarter.
Sherwin-Williams also has a strong liquidity position and is using its cash strategically. It generated $1.28 billion in net operating cash during the first nine months of 2022. The company also repurchased 2.75 million shares of its common stock during the period. It had remaining authorization to repurchase 45.8 million shares through open market purchases at the end of the third quarter.
A Few Headwinds
The company faces headwinds from higher raw material costs. Raw material inflation on a year-over-year basis had an impact on the company’s performance in the third quarter. The impacts of raw material cost inflation are likely to continue in the fourth quarter. The company sees input cost inflation of high-teens percentage for full-year 2022. Sherwin-Williams is also seeing higher labor and transportation costs. Higher costs may exert pressure on the company’s earnings.
Demand has also significantly softened in Europe due to the sluggish macroeconomic environment. Moreover, lack of meaningful recovery in China following the lifting of pandemic-led restrictions is also affecting the company. Demand is expected to remain sluggish in Europe and China in the fourth quarter, affecting the company’s volumes.
Better-ranked stocks worth considering in the basic materials space include Olympic Steel, Inc. (ZEUS - Free Report) , Commercial Metals Company (CMC - Free Report) and Nucor Corporation (NUE - Free Report) .
Olympic Steel currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for ZEUS's current-year earnings has been revised 1.5% upward in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Olympic Steel’s earnings beat the Zacks Consensus Estimate in three of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 25.4%, on average. ZEUS has rallied around 76% in a year.
Commercial Metals currently carries a Zacks Rank #1. The consensus estimate for CMC's current-year earnings has been revised 19.4% upward in the past 60 days.
Commercial Metals’ earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 16.7%, on average. CMC has gained around 48% in a year.
Nucor currently carries a Zacks Rank #1. The company has a projected earnings growth rate of 21.5% for the current year.
Nucor’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 3.9%, on average. NUE has rallied roughly 52% in a year.
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Here's Why You Should Hold Onto Sherwin-Williams for Now
The Sherwin-Williams Company (SHW - Free Report) is benefiting from favorable demand in its domestic end-use markets, focus on growth through expansion of operations and productivity improvement initiatives amid headwinds from input cost inflation and soft non-domestic demand.
The paints and coatings giant’s shares are down 17.9% over a year, compared with the 15% decline of its industry.
Image Source: Zacks Investment Research
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Aiding the Stock?
Sherwin-Williams is gaining from favorable demand in domestic markets. It is witnessing strong architectural sales volumes, which is driving sales in the Americas Group segment. It saw strong demand in the third quarter of 2022 across all professional architectural markets in the Americas Group.
The company, in its third-quarter call, said that it sees the strong positive results to continue into the fourth quarter. This is projected to be driven by sustained momentum in the Americas Group and industrial end markets in North America, continued price realization, good cost control and softer year-over-year comparisons. It expects consolidated net sales to increase high-single to low-double digit percentage year over year in the fourth quarter.
Sherwin-Williams’ cost-control initiatives, working capital reductions, supply chain optimization and productivity improvement are also expected to provide margin benefits. It is also implementing pricing actions to offset cost inflation, especially in raw materials.
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 added 32 net new stores through the first three quarters of 2022 and expects to add 40-50 new stores in the fourth quarter.
Sherwin-Williams also has a strong liquidity position and is using its cash strategically. It generated $1.28 billion in net operating cash during the first nine months of 2022. The company also repurchased 2.75 million shares of its common stock during the period. It had remaining authorization to repurchase 45.8 million shares through open market purchases at the end of the third quarter.
A Few Headwinds
The company faces headwinds from higher raw material costs. Raw material inflation on a year-over-year basis had an impact on the company’s performance in the third quarter. The impacts of raw material cost inflation are likely to continue in the fourth quarter. The company sees input cost inflation of high-teens percentage for full-year 2022. Sherwin-Williams is also seeing higher labor and transportation costs. Higher costs may exert pressure on the company’s earnings.
Demand has also significantly softened in Europe due to the sluggish macroeconomic environment. Moreover, lack of meaningful recovery in China following the lifting of pandemic-led restrictions is also affecting the company. Demand is expected to remain sluggish in Europe and China in the fourth quarter, affecting the company’s volumes.
The SherwinWilliams Company Price and Consensus
The SherwinWilliams Company price-consensus-chart | The SherwinWilliams Company Quote
Stocks to Consider
Better-ranked stocks worth considering in the basic materials space include Olympic Steel, Inc. (ZEUS - Free Report) , Commercial Metals Company (CMC - Free Report) and Nucor Corporation (NUE - Free Report) .
Olympic Steel currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for ZEUS's current-year earnings has been revised 1.5% upward in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Olympic Steel’s earnings beat the Zacks Consensus Estimate in three of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 25.4%, on average. ZEUS has rallied around 76% in a year.
Commercial Metals currently carries a Zacks Rank #1. The consensus estimate for CMC's current-year earnings has been revised 19.4% upward in the past 60 days.
Commercial Metals’ earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 16.7%, on average. CMC has gained around 48% in a year.
Nucor currently carries a Zacks Rank #1. The company has a projected earnings growth rate of 21.5% for the current year.
Nucor’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 3.9%, on average. NUE has rallied roughly 52% in a year.