Sherwin Williams' (SHW, Financial) results are being driven by solid traction for its best-selling paint brands namely Dutch Boy, Minwax and Krylon. Management of the company is now confident of a better performance in the future on the back of a positive-looking market. In addition, the acquisitions made in the past are also expected to play a major role in its success in the future. Let us have a closer look at the overall market and where does Sherwin Williams find itself in it?
What next for Sherwin?
Sherwin seems to have fired all its guns, and the aftermath is clearly evident with a solid 34% growth in the earnings. The analysts had been modeling an increase in the earnings, but the company came up surprisingly with such an upbeat performance. This is a clear indication of a solid financial and operational stability of the company. This should also attract investors to the stock, leading it to gain much market share in the future. It is highly anticipated as Sherwin is already trading close to its 52-week high.
The company is now focusing on various initiatives to improve its profitability. Sherwin has realigned its Paint Store Group and Latin American Coatings Group under one management team. This seems to be a wise move by the company as it can now share expertise between the two businesses, which will help it to leverage its operating, technical and supply chain resources, which is expected to benefit both the companies in the long run. In addition, Sherwin Williams has aggressive plans to penetrate the market with an expansion strategy. The company has already opened around 4,000 paint stores, and it seems well on track to achieve its target of opening 5,000 paint stores
Besides this, there are some other bright spots also which Sherwin Williams is counting on. It is expecting to see stable declining input costs, which will boost its margins. Also, the management is thinking that, if the drop in the oil prices is sustained in future, it will have a positive impact on the petrochemical side of its raw material basket.
Strong prospects
Looking at 2015, Sherwin Williams is seeing encouraging growth in the demands for paint and coatings. The company is also expected to benefit from the booming housing market. The housing recovery and the recovering U.S. economy will lead to growth in demand for new houses which will ultimately ramp up the demand for the paints and coatings, giving Sherwin Williams good growth opportunities in future.
In addition, in the recently reported quarter, the company also saw a solid 7% growth in the contracts for new residential square footage. With the growing development of segments such as office, hospitality, warehousing and apartment building, Sherwin Williams looks all set for another terrific fiscal year in terms of financial performance.
Conclusion
Now moving on to the fundamentals, the stock is reasonable with a trailing P/E of 32.67 while the forward P/E of 22.22 indicates good growth in the earnings in the near term. The profit margin of 7.78% is also impressive, and it is expected to attract more customers in the future. The stock can also be a solid long-term holding as its earnings are growing with a CAGR of 15.73%, which is better than the industry average of 14.29%. All these valuation levels are favourable and indicates that Sherwin Williams is a good pick as of now.
