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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 favorable demand in its domestic end-use markets, focus on growth through expansion of operations and productivity improvement initiatives amid headwinds from soft non-domestic demand.

The paints and coatings giant’s shares have rallied 23.1% over a year, compared with the 25% 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, on its fourth-quarter earnings call, stated that it expects net sales to increase 2-4% on a year-over-year basis in 2020. Based on this projection, the company expects earnings per share in the range of $19.91-$20.71 for 2020, which indicates a rise from $16.49 in 2019.

The company is seeing strong demand in its domestic end-use markets and remains committed to expand its retail operations. In the fourth quarter, it saw higher sales and profits in the Americas Group segment, primarily owing to increased paint sales volume across most end markets. The company is benefiting from sustained strength in architectural paint markets in North America.

Moreover, Sherwin-Williams is focused on capturing a larger share of its end-markets, as reflected by an increasing number of retail stores. The company added 62 net new stores in 2019 in its Americas Group unit. It plans to add 80-100 new stores in 2020.

Sherwin-Williams’ cost control initiatives, working capital reductions, supply chain optimization and productivity improvement are also yielding margin benefits. Working capital management and efforts to cut operating costs are also helping the company to generate strong cash flows. It generated strong net operating cash flows of $2.32 billion in 2019. 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 realized benefits worth around $315 million from synergies in 2019.

Headwinds Remain

Sherwin-Williams faces challenges from weak demand outside of the United States. The company witnessed relatively softer demand in non-domestic regions during the last reported quarter, especially in Asia and Europe. It is seeing pressure on its industrial wood business in China.

Softness in sales outside North America hurt sales in its Performance Coatings Group segment in the fourth quarter. Industrial demand remains sluggish in non-domestic markets, which may continue to affect sales in this unit.

Stocks to Consider

A few better-ranked stocks in the basic materials space are Daqo New Energy Corp. (DQ - Free Report) , Barrick Gold Corporation (GOLD - Free Report) and NovaGold Resources Inc. (NG - Free Report) .

Daqo New Energy has a projected earnings growth rate of 353.7% for 2020. The company’s shares have rallied 48% in a year. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Barrick Gold currently has a Zacks Rank #2 (Buy) and a projected earnings growth rate of 49% for 2020. The company’s shares have rallied 51% in a year.

NovaGold has a projected earnings growth rate of 11.1% for 2020. It currently carries a Zacks Rank #2. The company’s shares have surged 91% in a year.

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