Company Reports

Wide-moat Sherwin-Williams reported first-quarter earnings that came with few surprises as the company navigated challenging architectural end markets in the US. Weakness in industrial end markets has continued to weigh on Sherwin’s performance coatings business, a trend that could persist through the remainder of the year. Nevertheless, we expect Sherwin to maintain strong momentum in residential repaint while growth in single family housing starts should drive additional sales. As such, we've increased our fair value estimate to $219 from $214 per share.

Sherwin-Williams is the largest provider of architectural paint in the United States. The company has over 5,000 stores and sells premium paint at higher price points than most competitors. Sherwin-Williams also sells its products in big-box stores and provides coatings for original equipment manufacturers. More than three fourths of Sherwin's business occurs in North America, with much of its international exposure acquired during the 2016 purchase of Valspar. The acquisition of Valspar has bolstered its previously modest retail presence, as Valspar’s long-standing relationship with Lowe’s led to an exclusive partnership for Sherwin in 2018. Sherwin also obtained Valspar’s industrial business, expanding its performance coatings segment.

New single-family home sales increased 4% in 2023 to 666,000 units, as homebuilders capitalized on a dearth of existing for-sale inventory while also offering more sales incentives, cutting base home prices, and building smaller homes to improve affordability. By the fourth quarter of 2023, homebuilders began to pull back on sales incentives as the average 30-year fixed mortgage rate retreated from 7.62% in October 2023 to 6.64% in January 2024. However, mortgage rates have trended higher recently, and we now forecast the average 30-year fixed rate will be 6.50% in 2024, up from our previous forecast of 6.10%. Even so, that’s lower than the 2023 average of 6.81%, and we think homebuilders won’t hesitate to increase sales incentives if needed; they still enjoyed above-average gross profit margins last year with elevated incentives. As such, in 2024, we think new-home sales will increase 9% to 730,000 units and single-family housing starts will increase 4% to 985,000 units. However, we expect total housing starts will decline roughly 5% to 1,345,000 units due to a 23% decline in multifamily starts to 360,000 units, as there’s currently approximately 1,000,000 multifamily units under construction—the largest backlog in at least 50 years.

Wide-moat Sherwin-Williams reported solid fourth-quarter results that came with few surprises. Sherwin’s paint stores group continued to perform well as residential repaint drove volume growth in the quarter. While architectural paint markets remained constrained due to a slowdown in new and existing home sales in 2023, we expect improvements in 2024, driven by residential repaint and new residential construction. We are maintaining our fair value estimate of $214 per share.

Sherwin-Williams is the largest provider of architectural paint in the United States. The firm has over 5,000 stores and sells premium paint at higher price points than most competitors. Sherwin-Williams also sells its products in big-box stores and provides coatings for original equipment manufacturers. More than three fourths of Sherwin's business occurs in North America, with much of its international exposure acquired during the 2016 purchase of Valspar. The acquisition of Valspar has bolstered its previously modest retail presence, as Valspar’s long-standing relationship with Lowe’s led to an exclusive partnership for Sherwin in 2018. Sherwin also obtained Valspar’s industrial business, expanding its performance coatings segment.

New-home sales have rebounded since the spring of this year as sales incentives and price reductions have attracted buyers who have fewer options in the supply-constrained existing-home market. That said, homebuilder sentiment data tells us that smaller builders remain cautious. Even so, we forecast single-family starts to increase by 3% in 2024, to 0.92 million units. However, we project this increase in single-family starts will be more than offset by a 24% decline in multifamily starts, to 0.36 million units. Multifamily construction has been robust for the past three years, but a record construction backlog and higher construction and financing costs have tamed developers' appetite for new multifamily projects.

Sherwin-Williams is the largest provider of architectural paint in the United States. The firm has over 4,900 stores and sells premium paint at higher price points than most competitors. Sherwin-Williams also sells its products in big-box stores and provides coatings for original equipment manufacturers. More than three fourths of Sherwin's business occurs in North America, with much of its international exposure acquired during the 2016 purchase of Valspar. The acquisition of Valspar has bolstered its previously modest retail presence, as Valspar’s long-standing relationship with Lowe’s led to an exclusive partnership for Sherwin in 2018. Sherwin also obtained Valspar’s industrial business, expanding its performance coatings segment.

Wide-moat-rated Sherwin-Williams reported strong third-quarter results as a decline in new residential construction was more than offset by gains across Sherwin’s portfolio. Sherwin’s pricing power has been on full display recently as the company continues to realize previous pricing actions while also benefiting from moderating raw material costs. Despite a slowdown in existing home sales and housing starts, Sherwin is still experiencing growth in residential repaint, and we expect this trend to continue through the end of the year. We've increased our fair value estimate to $214 from $211 per share due to time value of money.

Sherwin-Williams is the largest provider of architectural paint in the United States. The firm has over 4,900 stores and sells premium paint at higher price points than most competitors. Sherwin-Williams also sells its products in big-box stores and provides coatings for original equipment manufacturers. More than three fourths of Sherwin's business occurs in North America, with much of its international exposure acquired during the 2016 purchase of Valspar. The acquisition of Valspar has bolstered its previously modest retail presence, as Valspar’s long-standing relationship with Lowe’s led to an exclusive partnership for Sherwin in 2018. Sherwin also obtained Valspar’s industrial business, expanding its performance coatings segment.

Sherwin-Williams is the largest provider of architectural paint in the United States. The company has over 4,900 stores and sells premium paint at higher price points than most competitors. Sherwin-Williams also sells its products in big-box stores and provides coatings for original equipment manufacturers. More than three fourths of Sherwin's business occurs in North America, with much of its international exposure acquired during the 2016 purchase of Valspar. The acquisition of Valspar has bolstered its previously modest retail presence, as Valspar’s long-standing relationship with Lowe’s led to an exclusive partnership for Sherwin in 2018. Sherwin also obtained Valspar’s industrial business, expanding its performance coatings segment.

New-home sales have remained resilient despite worsening housing affordability in recent months amid rising mortgage rates, with little relief in home prices in most markets. Year-to-date new-home sales through July were about even with the year-ago period, compared with a 22% decline in existing-home sales. The key to homebuilders’ relative success this year has been their ability to improve affordability by offering sales incentives, lowering base prices, and building smaller homes. According to the National Association of Home Builders, the share of builders offering incentives was 55% in August, up from 52% in July but down from 62% last year. One fourth of homebuilders reported lowering base prices by 6% on average. Homebuilders have also boosted production of speculative homes to capitalize on the tight supply of existing for-sale homes. Spec building also helps builders better manage construction cycle times and costs.

Wide-moat-rated Sherwin-Williams reported strong second-quarter results due to higher selling prices and robust architectural paint demand. Selling prices increased across all three segments and raw material costs continued to moderate, with both providing a strong boost to operating margins. While near-term headwinds in architectural paint remain, we expect potential volume pressures will largely be offset by favorable pricing and moderating raw materials costs. As such, we've increased our fair value estimate to $211 from $201 per share due to increased near-term revenue and profitability in our forecast.

Sherwin-Williams is the largest provider of architectural paint in the United States. The company has over 4,900 stores and sells premium paint at higher price points than most competitors. Sherwin-Williams also sells its products in big-box stores and provides coatings for original equipment manufacturers. More than three fourths of Sherwin's business occurs in North America, with much of its international exposure acquired during the 2016 purchase of Valspar. The acquisition of Valspar has bolstered its previously modest retail presence, as Valspar’s long-standing relationship with Lowe’s led to an exclusive partnership for Sherwin in 2018. Sherwin also obtained Valspar’s industrial business, expanding its performance coatings segment.

Through the first four months of 2023 (typically viewed as the “spring selling season” for homebuilders) new home sales significantly outperformed existing home sales. Indeed, April year-to-date new home sales declined roughly 10% year over year compared to over a 26% decline for existing home sales. New home sales improved sequentially during the first four months of the year, and April sales increased 11% year over year, albeit on an easy prior-year comparison (April 2022 new sales were down 24% year over year).

Sherwin-Williams reported first-quarter results that were largely in line with our expectations as pricing growth more than offset elevated costs. Volume was mixed across Sherwin’s portfolio as strength in residential and professional markets were met with weakness in do-it-yourself, or DIY, and packaging. That said, Sherwin continued to flex its pricing power, with increases in all three segments. Higher operating costs were somewhat offset by moderating materials costs, but both will likely remain a concern for the foreseeable future. Consolidated operating margins expanded almost 300 basis points from a year ago to 13.2%, largely driven by strong pricing. Demand held-up well in the first quarter, but near-term pressure remains amid heightened economic uncertainty. We are maintaining our fair value estimate of $201 per share.

Sherwin-Williams is the largest provider of architectural paint in the United States. The company has over 4,900 stores and sells premium paint at higher price points than most competitors. Sherwin-Williams also sells its products in big-box stores and provides coatings for original equipment manufacturers. More than three fourths of Sherwin's business occurs in North America, with much of its international exposure acquired during the 2016 purchase of Valspar. The acquisition of Valspar has bolstered its previously modest retail presence, as Valspar’s long-standing relationship with Lowe’s led to an exclusive partnership for Sherwin in 2018. Sherwin also obtained Valspar’s industrial business, expanding its performance coatings segment.

U.S. home sales slowed significantly in 2022 as rising mortgage rates and elevated home prices made homeownership less affordable for more Americans. By mid-2022, the average 30-year fixed mortgage rate had increased roughly 300 basis points year over year to over 6%. According to estimates from the National Association of Home Builders, this rate increase priced out more than 16 million households. We also think higher rates and general economic uncertainty caused some qualified prospective buyers to move to the sidelines. All told, 2022 new- and existing-home sales declined 17% and 18% year over year, respectively.

Wide-moat-rated Sherwin-Williams reported solid fourth-quarter results on strong pricing gains and margin improvement. Management cited continued supply and material cost inflation improvements during the quarter but noted both remain a concern. Consolidated operating margins improved 80 basis points over the prior year to 13.6% as selling price increases offset higher input and operating costs. While volume growth was mixed across segments during the quarter, we expect growth to be pressured in 2023 amid heightened economic uncertainty.

Sherwin-Williams is the largest provider of architectural paint in the United States. The company has approximately 4,900 stores and sells premium paint at higher price points than most competitors. Sherwin-Williams also sells its products in big-box stores and provides coatings for original equipment manufacturers. More than three fourths of Sherwin's business occurs in North America, with much of its international exposure acquired during the 2016 purchase of Valspar. The acquisition of Valspar has bolstered its previously modest retail presence, as Valspar’s long-standing relationship with Lowe’s led to an exclusive partnership for Sherwin in 2018. Sherwin also obtained Valspar’s industrial business, expanding its performance coatings segment.

After analyzing recent United States housing market data and industry commentary, we've made downward revisions to our near-term outlook for new residential construction, home prices, and repair and remodel spending.