Analyst Note| Charles Gross |
Sherwin Williams' second-quarter sales slowdown proved remarkably brief. Despite elevated unemployment enrollment and reduced benefits, paint sales strengthened in the third quarter. In aggregate, sales and adjusted EBITDA rose 5.2% and 11.7%, respectively, from the prior year. Do-it-yourself painters were the star of the quarter, driving tremendous sales growth out of retail outlets like Lowe's. Given that the U.S. housing market has proven surprisingly resilient in 2020, we expect this year and next to yield hearty financial results for Sherwin Williams. Due to increased 2020 management guidance and time value of money effects, our fair value estimate rises to $380 per share from $360. Our narrow moat rating is unchanged. With shares trading at nearly $680 per share, or just under 19 times forward EBITDA, we view Sherwin Williams as significantly overvalued.