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 headwinds from soft non-domestic demand.
The paints and coatings giant’s shares have rallied 25.2% over a year, compared with the 24% 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. In the last reported quarter, it witnessed higher sales in the Americas Group segment, primarily owing to higher architectural paint sales volumes across all 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 plans to open around 50 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. The company is also taking appropriate pricing actions, which is lending support to its margins.
The company also remains committed to boost returns to shareholders. It repurchased 1.7 million shares of its common stock in the first quarter of 2020. Sherwin-Williams also hiked its quarterly dividend by 18.6% to $1.34 per share during the first quarter. It remains committed to maintain this dividend payout.
Headwinds Remain
Sherwin-Williams faces challenges from weak demand outside of the United States. The company witnessed relatively softer demand in non-domestic regions in the first quarter due to the impacts of the coronavirus pandemic. The company expects the impacts of coronavirus to continue in the second quarter and anticipates sales in its international businesses to be under significant pressure.
Sherwin-Williams, in its first-quarter call, said that it anticipates consolidated net sales for the second quarter to decrease year over year by a low-to-mid-teen percentage. The company also lowered its earnings per share guidance for 2020 to $16.46-$18.46 from its earlier view of $19.91-$20.71.
The SherwinWilliams Company Price and Consensus
The SherwinWilliams Company price-consensus-chart | The SherwinWilliams Company Quote
Stocks to Consider
Better-ranked stocks worth considering in the basic materials space are Agnico Eagle Mines Limited AEM, Alamos Gold Inc. AGI and Franco-Nevada Corporation FNV.
Agnico Eagle has a projected earnings growth rate of 53.6% for the current year. The company’s shares have gained roughly 21% in a year. It currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Alamos Gold has a projected earnings growth rate of 65% for the current year. The company’s shares have shot up around 35% in a year. It currently has a Zacks Rank #2 (Buy).
Franco-Nevada has a projected earnings growth rate of 19.2% for the current year. The company’s shares have surged around 61% in a year. It currently has a Zacks Rank #2.
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