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Sherwin-Williams Hits Fresh 52-Week High on Upbeat Prospects

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Shares of The Sherwin-Williams Company SHW scaled a fresh 52-week high of $479.46 on Sep 20, before closing the session at $477.98.

The company has a market cap of roughly $44.4 billion and average volume of shares traded in the past three months was around 578.4K. It has an expected long-term earnings per share (EPS) growth of 11.9%.

Sherwin-Williams’ shares have gained 36.8% in the past year, outperforming the industry’s rally of 35.2%.

What’s Driving the Stock?

Upbeat prospects from the Valspar acquisition along with buoyant earnings outlook for 2018 are contributing to the rally in Sherwin-Williams’ shares.

The company, in its second-quarter call, stated that it expects mid-to-high single digit percentage increase in net sales year over year for third-quarter 2018. The company also raised adjusted EPS guidance for 2018 to $19.05-$19.35 from the previous projections of $18.35-$18.95. It expects favorable demand trends across most businesses and geographies to support growth expectations.

Sherwin-Williams’ margins are benefiting from addition of Valspar-related sales. The buyout has strengthened the company’s position as a leading paints and coatings provider globally, leveraging highly complementary offerings, strong brands and technologies. Sherwin-Williams is likely to gain from significant synergies of the buyout. The company expects to achieve $320 million in annual run-rate synergies by the end of 2018, which is expected to contribute $140-$160 million to its bottom line.

Moreover, the company’s cost-control initiatives, supply chain optimization, working capital reductions and productivity improvement are also expected to yield margin benefits. Efforts to cut operating costs and working capital management are also helping the company generate healthy cash flows. Sherwin-Williams is also taking appropriate pricing actions in the wake of raw material cost inflation, which is likely to support margins.

Notably, earnings estimates for Sherwin-Williams have also moved north in the past month. Over this period, the Zacks Consensus Estimate for 2018 has increased from $19.27 to $19.30. Also, the Zacks Consensus Estimate for 2019 has inched up 0.2% over the same timeframe to $22.32.


Zacks Rank & Stocks to Consider

Sherwin-Williams currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the Construction sector are Simpson Manufacturing Company, Inc. (SSD - Free Report) , Patrick Industries, Inc. PATK and Continental Building Products, Inc. CBPX, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Simpson Manufacturing has an expected long-term earnings growth rate of 5%. Its shares have rallied 58.1% in the past year.

Patrick Industries has an expected long-term earnings growth rate of 14.9%. Its shares have gained 21% in the past year.

Continental Building has an expected long-term earnings growth rate of 30%. Its shares have surged 49% in a year.

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