Evercore ISI has adjusted its price target for Sherwin-Williams (NYSE: NYSE:SHW), a major player in the paint and coating industry, reducing it to $400 from the previous $410 while maintaining an Outperform rating on the stock.
The revision follows Sherwin-Williams' third-quarter performance, which showed slightly softer sales than anticipated. The company's strategic investments in selling, general, and administrative expenses (SG&A) to consolidate market share led to earnings falling short by $0.20, prompting analysts to anticipate a potential 2% reduction in street estimates.
Despite the recent earnings miss and subsequent decrease in the price target, Evercore ISI remains optimistic about Sherwin-Williams' prospects. The firm highlights the company's effective strategy of gaining market share and building a competitive moat, suggesting that the current dip in stock price offers an opportunity akin to conditions seen in August, prior to the analyst day and a Federal Reserve rate cut. The analyst sees this as a "second chance" for investors looking to capitalize on potential recovery plays tied to interest rates and home improvement.
Sherwin-Williams' ability to realize pricing power, gain market share, and improve volumes by 2025 are key factors keeping it within Evercore ISI's top five stock picks. While some critics point to the company's valuation, volume concerns, and diminishing gross margin benefits as raw material costs stabilize, supporters argue that Sherwin-Williams' consistent market share gains, particularly among professional painters, and volume improvements in its Performance Coatings Group and Consumer Brands Group, paint a more favorable picture. Additionally, moderating raw material costs and positive price/mix trends are seen as beneficial.
Evercore ISI also supports Sherwin-Williams' decision to invest now in anticipation of a 5% price increase in January. The firm's base case price target of $400 reflects a 40% premium relative to the S&P 500 based on calendar year 2025 earnings per share (EPS), which has been modestly adjusted to $12.75. This premium is in line with Sherwin-Williams' historical valuation over the past decade, although it falls below the over 60% premium the company achieved in 2011 and 2012 when it experienced simultaneous volume growth and favorable price-to-raw material cost dynamics.
In other recent news, Sherwin-Williams reported a strong third quarter in 2024, with consolidated sales growth, improved gross margins, and increased earnings per share (EPS). The company is holding onto its full-year EPS guidance, despite temporary store closures due to hurricanes, and has announced a 5% price increase across all segments to combat rising costs.
The company's executives have expressed confidence in their strategic investments and operational readiness to capitalize on market improvements. They are particularly focused on the Paint Stores Group and Consumer Brands. Sherwin-Williams is preparing for a modest recovery in the second half of 2025, driven by improving economic conditions and home equity.
The Paint Stores Group reported low single-digit growth, while the Consumer Brands Group faced a high single-digit sales decline. Despite these challenges, the company returned $631 million to shareholders through dividends and share repurchases. The company is closely monitoring rising costs in raw materials, such as propylene and health care.
Sherwin-Williams is planning continued investments to seize long-term market share opportunities. They are ready for a modest recovery in the second half of 2025, but anticipate choppy conditions in the first half of the year.
InvestingPro Insights
To complement Evercore ISI's analysis, recent data from InvestingPro provides additional context for Sherwin-Williams' (NYSE:SHW) financial position and market performance. The company's market capitalization stands at an impressive $91.16 billion, reflecting its significant presence in the chemicals industry.
InvestingPro Tips highlight Sherwin-Williams' strong dividend history, having raised its dividend for 32 consecutive years and maintained payments for 46 years. This consistent dividend growth, coupled with a current dividend yield of 0.79%, underscores the company's commitment to shareholder returns, aligning with Evercore's positive outlook.
The company's financial metrics reveal a robust gross profit margin of 48.46% for the last twelve months as of Q3 2024, indicating strong pricing power—a key factor mentioned in Evercore's analysis. Additionally, Sherwin-Williams has demonstrated solid revenue growth, with a 0.75% increase in the most recent quarter, supporting the narrative of ongoing market share gains.
While Evercore adjusted its price target, it's worth noting that InvestingPro's fair value estimate for Sherwin-Williams stands at $292.29, providing an alternative perspective for investors to consider. The stock's strong performance is evident in its 52.77% total return over the past year, reinforcing Evercore's view of SHW as a top pick for recovery in the home improvement sector.
For investors seeking a deeper dive into Sherwin-Williams' financials and market position, InvestingPro offers 14 additional tips, providing a comprehensive toolkit for informed decision-making.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.