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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 gaining from demand strength in the domestic market, its focus on growth through expansion of operations, productivity improvement initiatives and synergies of the Valspar acquisition amid certain headwinds including weak non-domestic demand.

The paints and coatings giant has seen its shares rally 46.8% year to date, outperforming the 42.9% rise of its industry.

Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.



What’s Favoring the Stock?

Sherwin-Williams is witnessing 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. The company added 31 net new stores in the first nine months of 2019. Plans are in place to add around 80-100 net new stores in North America by the end of 2019.

The company is benefiting from sustained strength in architectural paint markets in North America. Its sales in the third quarter were driven by increased paint sales volume in North American stores and higher selling prices that more than offset weak demand across certain end-markets outside the United States.

Moreover, Sherwin-Williams’ cost control initiatives, working capital reductions, supply chain optimization and productivity improvement are 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.

The company is also gaining from synergies of the Valspar acquisition. It expects to achieve total annual run rate synergies of around $415 million at the end of 2019.

A Few Worries

Sherwin-Williams is seeing weak demand outside of the United States. The company witnessed relatively softer demand in non-domestic regions during the third quarter, especially Asia and Europe, where sales were down by high and low-single digit percentages, respectively. Trade issues have led to softness in markets in Asia.  The company expects sales in its Performance Coatings Group unit to decline by low-single digits in the fourth quarter factoring in soft industrial demand in non-domestic markets.

The company is also exposed to currency translation headwinds. In the third quarter, unfavorable currency translation dented consolidated sales by 0.9%. Moreover, currency translation reduced third-quarter sales of the Performance Coatings Group by 1.6%. Currency headwinds may continue in the fourth quarter.


Stocks Worth a Look

A few better-ranked stocks in the construction space include Orion Group Holdings, Inc. (ORN - Free Report) , Gibraltar Industries, Inc. (ROCK - Free Report) and MasTec, Inc. (MTZ - Free Report) .

Orion Group Holdings has an expected earnings growth rate of 54.1% for the current year and sports a Zacks Rank #1 (Strong Buy). The company’s shares have gained 22% over the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Gibraltar Industries has an expected earnings growth rate of 19.2% for the current year and carries a Zacks Rank #1. Its shares have rallied 45.1% in the past year.

MasTec has an expected earnings growth rate of 36.6% for the current year and carries a Zacks Rank #2 (Buy). Its shares have surged 48.8% in the past year.

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