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Why You Should Keep Sherwin-Williams (SHW) in Your Portfolio

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The Sherwin-Williams Company SHW is benefiting from favorable demand in its domestic end-use markets, focus on growth through expansion of operations and productivity improvement initiatives amid certain headwinds including weak non-domestic demand.

The paints and coatings giant’s shares have surged 50.6% over a year, compared with the 49.6% rise of its industry.


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 seeing strong 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.

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.

The company is also gaining from synergies of the Valspar acquisition. The company, in October, said that it expects to end 2019 at annual run rate synergies of around $415 million.

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.

A Few Worries

Sherwin-Williams faces challenges from soft 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. Unfavorable currency translation dented consolidated sales by 0.9% in the third quarter. Moreover, currency translation reduced sales of the Performance Coatings Group by 1.6% in the quarter. Currency headwinds may continue to impact sales in the fourth quarter.

Stocks to Consider

A few better-ranked stocks in the construction space include North American Construction Group Ltd. (NOA - Free Report) , Armstrong World Industries, Inc. AWI and MasTec, Inc. MTZ, all carrying a Zacks Rank #2 (Buy).

North American Construction has an expected earnings growth rate of 17.8% for the current year. Its shares have gained 13% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Armstrong World Industries has an expected earnings growth rate of 12.3% for the current year. The company’s shares have rallied 59% over the past year.

MasTec has an expected earnings growth rate of 8% for the current year. Its shares have surged 41% in the past year.

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