The Sherwin-Williams Company SHW is benefiting from strong momentum in its Paint Stores Group segment, pricing and cost management actions and expansion of operations amid a challenging demand environment.
Shares of Sherwin-Williams have gained 9.9% over the past year, outpacing its industry’s 7.7% increase.
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Let’s find out why this Zacks Rank #3 (Hold) value is worth holding for now.
Cost and Expansion Actions Assistance SHW
Sherwin-Williams is witnessing strong domestic demand and expanding its retail business. Auto refinishing demand is steady, with sales increasing by a mid-single-digit percentage in the last reported quarter. As evidenced by the growing number of retail stores, the company remains focused on capturing a larger share of its end markets. In the first nine months of 2023, Paint Stores Group added 36 net new stores, including 16 in the third quarter. Paint Stores Group sales increased 3.6% in the third quarter due to consistent effective pricing. The segment margin increased by 420 basis points to 25.9%.
The reduction initiatives, supply chain optimization and productivity improvements implemented by Sherwin-Williams should continue to generate marginal benefits. Efforts to reduce operating expenses enabled the company to produce significant net cash flows from operations of approximately $1.9 billion in 2022. In addition, strong cash generation enabled the company to return $1.41 billion to shareholders in dividends and share repurchases during the first nine months of 2023. .
The company is also focusing on restructuring that will deliver benefits in 2023. Consumer Brands Group, Performance Coatings Group and corporate business are the focus areas for this restructuring effort.
Sherwin-Williams strengthened its position as the global leader in paints and coatings by acquiring Valspar and leveraging its highly complementary offerings, powerful brands and revolutionary technology. As a result of this buyout, SHW’s brand portfolio and customer base in North America expanded, and the company’s global end-to-end business was strengthened. The acquisition expanded the company’s global footprint to include Asia Pacific, Europe, the Middle East and Africa, as well as new packaging and coiling capabilities.
The company increased its net income per share forecast for fiscal 2023. It expects full-year net income per share to be in the range of $9.21 to $9.41, up from $8.46-$8.86 previously designed. This includes an acquisition-related amortization expense of 80 cents per share and a net expense of 9 cents per share due to the Restructuring Plan. Full-year 2023 adjusted net income per share is now forecast to be in the range of $10.10 to $10.3, up from $9.30 to $9.70 expected earlier.
Requirement Mildness Ails
The company is exposed to a difficult demand environment. Demand softened in Europe due to the sluggish macroeconomic environment. In addition, the lack of significant recovery in China after the lifting of pandemic restrictions is also affecting demand. SHW witnesses weak demand in new residential and the Consumer Brands Group DIY. The difficult demand environment is likely to continue in the fourth quarter of 2023.
The Sherwin-Williams Company Price and Agreement
The Sherwin-Williams Company price consensus chart | The Quote from the Sherwin-Williams Company
Stocks Worth Considering
Better ranked stocks in the basic materials space include Denison Mines Corp. dnn, Axalta Coating Systems Ltd. AXTA and The Andersons Inc. ANDE.
Denison Mines has projected earnings growth of 100% for the current year. It currently carries a Zacks Rank number 1 (Strong Buy). DNN delivered a trailing four-quarter earnings surprise of about 225%, on average. The stock is up about 52.9% in a year. you can see the complete list of today’s Zacks #1 Rank stocks here.
Axalta has projected earnings growth of 5.4% for the current year. It currently carries a Zacks Rank #1. AXTA delivered a trailing four-quarter earnings surprise of about 6.7%, on average. The stock is up about 15.7% in a year.
Andersons currently carries a Zacks Rank #2 (Buy). The stock has gained about 36.5% in the past year. ANDE has beaten the Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 64.4%, on average.
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