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SHW

Sherwin-Williams NYSE:SHW Stock Report

Last Price

US$204.75

Market Cap

US$52.8b

7D

-3.1%

1Y

-28.2%

Updated

02 Oct, 2022

Data

Company Financials +
SHW fundamental analysis
Snowflake Score
Valuation4/6
Future Growth2/6
Past Performance2/6
Financial Health2/6
Dividends4/6

SHW Stock Overview

The Sherwin-Williams Company develops, manufactures, distributes, and sells paints, coatings, and related products to professional, industrial, commercial, and retail customers.

The Sherwin-Williams Company Competitors

Price History & Performance

Summary of all time highs, changes and price drops for Sherwin-Williams
Historical stock prices
Current Share PriceUS$204.75
52 Week HighUS$354.15
52 Week LowUS$204.57
Beta1.05
1 Month Change-11.67%
3 Month Change-12.96%
1 Year Change-28.17%
3 Year Change11.92%
5 Year Change60.18%
Change since IPO7,021.74%

Recent News & Updates

Sep 12
We Think Sherwin-Williams (NYSE:SHW) Can Stay On Top Of Its Debt

We Think Sherwin-Williams (NYSE:SHW) Can Stay On Top Of Its Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the...

Sep 08

Sherwin-Williams: After A 30%+ Retreat, Future Returns Look Much Brighter

Summary Sherwin-Williams is a Dividend Champion with 43 consecutive years of dividend growth. Shares currently yield 1.01%. Sherwin-Williams is a leader in the paints and specialty coatings industry focused primarily on the Americas. With a 30%+ pullback in share price, Sherwin-Williams is back to trading within the fair value range, albeit on what I believe is the high side. Sherwin-Williams (SHW) is a leader in the paints and specialty coatings business. They are largely focused on the Americas; however, they do manufacture and distribute their offerings throughout the Caribbean, Europe, and the Asia-Pacific region. SHW Global Presence (SHW 2022 Investor Presentation) Sherwin-Williams is organized into three operating segments: (1) The Americas Group, (2) Consumer Brands Group, and (3) Performance Coatings Group. Sherwin-Williams is largely tied to the residential markets through their relationships with professional painters. Pro painters rely on being able to get a consistent and quality product and Sherwin-Williams' 4,850+ stores allow quick and easy access. While a potential continued cooling in the housing market would be a short-term headwind for Sherwin-Williams it shouldn't be a long-term structural issue. SHW US Architectural Paint Industry (SHW 2022 Investor Presentation) Sherwin-Williams' share price is down 32% from its high reached in late 2021. Believe me I've felt that as I've seen my stake dwindle down in value. However, I believe that I purchased shares at what will prove to be fair value when looking at the long-term although in hindsight I should have been more nimble with a decision to at least trim back the position. SHW data by YCharts Seeing shares in what I believe is a quality business that should continue to reward shareholders over time with both strong dividend growth and capital appreciation, I wanted to re-examine the business to see if it makes sense to add to my stake. Dividend History The dividend growth strategy is the one that I gravitated towards most when I began investing in individual businesses. As such my goal is to find businesses with a consistent track record of growing their dividend over time and to purchase said businesses at reasonable valuations. Sherwin-Williams Dividend History (Sherwin-Williams Investor Relations) According to the CCC list, Sherwin-Williams is a Dividend Champion with 43 consecutive years of dividend growth. Dividend growth has had periods of underwhelming growth; however, over time dividend growth has been quite impressive. Dating back to 1993, year over year dividend growth from Sherwin-Williams has ranged from 1.2% to 100.0% with an average of 16.1% and a median of 11.8%. Over that same time there's been 25 rolling 5-year periods with annualized dividend growth spanning from 4.4% to 29.2% with an average of 13.4% and a median of 13.2%. There's also been 20 rolling 10-year periods with Sherwin-Williams' annualized dividend growth coming in between 9.4% and 17.3% with an average of 12.6% and a median of 12.2%. The rolling 1-, 3-, 5-, and 10-year annualized dividend growth rates from Sherwin-Williams since 1993 can be found in the following table. Year Annual Dividend 1 Year 3 Year 5 Year 10 Year 1993 $0.042 1994 $0.047 11.82% 1995 $0.093 100.00% 1996 $0.117 25.00% 40.87% 1997 $0.133 14.29% 41.90% 1998 $0.150 12.50% 17.13% 29.16% 1999 $0.160 6.67% 11.10% 27.94% 2000 $0.180 12.50% 10.52% 14.04% 2001 $0.193 7.41% 8.83% 10.63% 2002 $0.200 3.45% 7.72% 8.45% 2003 $0.207 3.33% 4.71% 6.62% 17.35% 2004 $0.227 9.68% 5.45% 7.21% 17.12% 2005 $0.273 20.59% 10.97% 8.71% 11.34% 2006 $0.333 21.95% 17.27% 11.51% 11.07% 2007 $0.420 26.00% 22.83% 16.00% 12.16% 2008 $0.467 11.11% 19.52% 17.69% 12.02% 2009 $0.473 1.43% 12.40% 15.87% 11.46% 2010 $0.480 1.41% 4.55% 11.92% 10.31% 2011 $0.487 1.39% 1.41% 7.86% 9.67% 2012 $0.520 6.85% 3.18% 4.36% 10.03% 2013 $0.667 28.21% 11.57% 7.39% 12.43% 2014 $0.733 10.00% 14.65% 9.15% 12.46% 2015 $0.893 21.82% 19.77% 13.23% 12.57% 2016 $1.120 25.37% 18.88% 18.14% 12.88% 2017 $1.133 1.19% 15.62% 16.86% 10.44% 2018 $1.147 1.18% 8.68% 11.46% 9.41% 2019 $1.507 31.40% 10.39% 15.49% 12.28% 2020 $1.787 18.58% 16.38% 14.87% 14.05% 2021 $2.200 23.13% 24.26% 14.46% 16.28% 2022* $2.400 9.09% 16.79% 16.19% 16.53% Source: Author; Data Source: Sherwin-Williams Investor Relations *Assumes a 4Q payment of $0.60 per share is declared and paid. The humble dividend payout ratio gives you a lot more information about the business other than just how much of the profits or free cash flow has been committed to rewarding shareholders. A flat payout ratio lets you know that any dividend growth over time has been supported by growth improving company fundamentals. SHW Dividend Payout Ratios (SHW SEC filings) Even in the face of very strong dividend growth, Sherwin-Williams' underlying profits and cash flows have justified that rapid growth. The 10-year average net income payout ratio for Sherwin-Williams is 25.9% with the 5-year average coming to 26.0%. Similarly, the free cash flow payout ratios are 22.5% and 21.3%, respectively. Sherwin-Williams' dividend has historically been well covered by both profits and cash flow and if that trend continues then I fully expect dividend growth to be quite strong over time. Quantitative Quality A lengthy dividend growth history is just one metric that I want to see from my investments. When looking into a company I like to track the business across a wide variety of financial metrics and ratios to see how the business has changed over time. This helps me to get a grasp on the financial capabilities of the underlying business and in turn get a feel for the quality of the enterprise. SHW Revenue Profits and Cash Flow (SHW SEC filings) Sherwin-Williams has had a very strong run over the last decade with improving fundamentals. With organic growth as well as the Valspar acquisition, revenues grew by 133.7% over the last decade or 9.9% annualized. Gross profits lagged slightly behind, rising 103.1% or 8.2% annualized. Meanwhile operating profits surged forward by 183.6% or 12.3% annualized with operating cash flow rising by 152.8% or 10.9% annualized. Free cash flow was equally impressive showing a total increase of 156.2% or 11.0% annualized. Good businesses should be able to defend their positions and margin structure over time. Generally I would expect to see margins at least stable and more than likely rising as they flex their strengths versus competitors. I prefer to see free cash flow margins greater than 10%. SHW Margins (SHW SEC filings) Sherwin-Williams has averaged a 46.3% gross margin over the last decade with the 5-year average coming to 44.5%. The current inflationary environment has exacerbated that with gross margins down to 41.0% for the TTM period; however, the trend was already in place well before that. Sherwin-Williams' free cash flow margin hasn't been the most consistent surpassing 10% in just 4 of the last 10 years. Although the 10-year average free cash flow margin is 10.3% with the 5-year average coming to 11.6%. Margins are important to track; however, I place more weight on the free cash flow returns versus some measure of capital, i.e. assets, invested capital, tangible capital, or capital employed. I believe these metrics give a better idea of the capital efficiency of the business as margins are largely determined by the sector of the economy that a business operates in. My preference is to see stable and improving FCF ROIC's over time that are greater than 10%. SHW Free Cash Flow Returns (SHW SEC filings) We see quite a bit of variability in the FCF returns from Sherwin-Williams over the last decade. Despite the variability they have maintained strong FCF ROA which surpassed 10% in 6 of the last 10 years. The 10-year average FCF ROA for Sherwin-Williams is 12.9% with the 5-year average working out to 10.2%. When looking at the FCF ROIC Sherwin-Williams once again has seen large fluctuations; however, they have maintained >10% each year over that time although there was a significant drop leading up to the Valspar acquisition that they are still working to recover from. The 10-year average FCF ROIC comes to 22.4% with the 5-year average at 14.9%. The FCF ROTC attempts to try and figure out the returns on the tangible assets the business controls by removing things such as goodwill and intangibles from the capital base. Goodwill especially is a very real cost in terms of capital allocation as overpaying for acquisitions will be a drag on future returns; however, it doesn't really effect the return the business is able to generate. The 10-year average FCF ROTC comes to 68.6% with the 5-year average at 73.3% and has remained strong even after the Valspar acquisition. To understand how Sherwin-Williams uses its free cash flow I calculate three variations of the metric, defined below: Free Cash Flow, FCF: Operating cash flow less capital expenditures Free Cash Flow after Dividend, FCFaD: FCF less total cash dividend payments Free Cash Flow after Dividend and Buybacks, FCFaDB: FCFaD less net cash spent on share repurchases SHW Free Cash Flows (SHW SEC filings) Sherwin-Williams has been able to generate roughly its market cap from 10 years ago in FCF over the ensuing decade. In total the business generated $15.1 B in FCF while sending $3.3 B back to shareholders via dividends. That puts the cumulative FCFaD at $11.9 B for the last decade. Sherwin-Williams has also spent a net total of $8.9 B on share repurchases over that time. That brings the cumulative FCFaDB to $2.9 B. Sherwin-Williams has been a bit inconsistent with their share repurchases, which I like to see as it points to potential attempts to be aggressive when the valuation is cheap. Of the cash returned to shareholders through dividends and share repurchases over the last decade roughly $0.36 was paid in dividends for every net $1.00 on share buybacks. Share repurchases can be an additional way for management teams to return additional cash to shareholders. While I would prefer special dividends, I understand that most businesses will opt for buybacks. SHW Shares Outstanding (SHW SEC filings) Sherwin-Williams has seen its share count fall by 14.3% in total with the $8.9 B net spent on share repurchases. That works out to around a 1.7% annual decline. The bulk of the reduction came in 3 years: FY 2014, FY 2015, and FY 2021 which showed year over year declines of 4.9%, 4.1% and 3.2%, respectively. SHW data by YCharts My aim for my investment capital is to find opportunities where I believe I can invest my capital with an intermediate term outlook, i.e. 3-5 years at a minimum. As such I want to make sure the balance sheet appears safe and not excessively leveraged and potentially putting my equity stake at risk should the interest rate environment change. SHW Debt to Capitalization (SHW SEC filings) Sherwin-Williams is financed in large part through debt. The 10-year average debt-to-capitalization ratio for Sherwin-Williams is 66% with the 5-year average up to 75%. This is a yellow flag; however, it's partially offset by Sherwin-Williams' debt schedule which doesn't have a sizable maturity until 2024 and 2025 which adds flexibility. Additionally the debt they do carry is largely very low, historically speaking, in terms of interest rates. SHW Debt Schedule FY 2021 (SHW FY 2021 Annual Report) In my opinion the net debt ratios give a better idea of the leverage placed upon the business. The net debt ratio examines the level of net debt compared to some measure of profits or cash flow and represent how quickly the business could extinguish all of its outstanding debt. SHW Debt Ratios (SHW SEC filings) The 10-year average net debt-to-EBITDA, net debt-to-operating income, and net debt-to-FCF for Sherwin-Williams comes to 2.2x, 2.7x, and 3.3x, respectively. The 5-year averages work out to 3.6x, 4.5x, and 5.2x accordingly. Sherwin-Williams carries a bit more debt than I'd like to see; however, given the maturity schedule and relatively low interest rates there's no major concern for me at this time. Valuation Identifying a business is only part of the problem when it comes to investing in individual businesses. One must also determine a fair price to pay for that asset. When determining a fair value for the business I utilize several valuation methods in order to home in on an attractive price to pay. The valuation methods that I use are dividend yield theory, a reverse discounted cash flow analysis, and a minimum acceptable rate of return, "MARR", analysis. Dividend yield theory is a simple valuation model that bases the valuation around the dividend yield that shares offer. The idea is that over time investors, collectively, will value a business such that it offers a similar dividend yield and will gravitate back towards the normal dividend yield. Sherwin-Williams Dividend Yield Theory (SHW Investor Relations and Google Finance) Over the last decade Sherwin-Williams has seen its dividend yield cut in half from roughly 2% annually to being fairly consistently around 1% since around 2012/2013. The yield bands appear to mark points of intermediate-term under- and -overvaluation. The 5-year average forward dividend yield for Sherwin-Williams is 0.86% and shares currently offer a forward yield of 1.01%. A reverse discounted cash flow analysis can be used to reverse engineer the growth and margin structure that a business must have in order to generate the cash flows that would justify the current valuation. I use a simplified DCF model built on revenue growth, an initial FCF margin of 8.5% that improves to 12.5% during the forecast period. The terminal growth rate is estimated at 3.0%. For the discount rate I've used an after-tax cost of debt of 3.21% along with both a 10% and 8% cost of equity. That yields an 8.9% discount rate for the 10% cost of equity scenario and 7.2% for the 8.0% cost of equity. Under those assumptions Sherwin-Williams needs to grow revenues 11.1% annually during the forecast period in order to generate the cash flows that would support purchasing shares at the current valuation at a 10% return target. With the 8% cost of equity scenario the required revenue drops to 5.7% annually over the same period. The MARR analysis requires you to estimate the future earnings and dividends that a business will generate during a given time period. You then apply a reasonable and conservative multiple on those future earnings in order to determine what the future share price might be and calculate the expected return. If the expected return is greater than your minimum threshold for investment then you can feel free to invest. Analysts expect Sherwin-Williams to earn $8.64 per share for FY 2022 with $10.44 in EPS for FY 2023. They also expect Sherwin-Williams to be able to grow EPS 9.5% annually for the next 5 years. I then assumed that EPS growth would slow to 5.0% annually for the following 5 years. Dividends are assumed to target a 30% payout ratio of the prior year EPS. SHW EV to EBITDA data by YCharts The following table shows the potential internal rates of return that an investment in Sherwin-Williams could generate if the assumptions from above prove to be reasonable forecasts for how the future plays out. Returns assume that shares are purchased for $238.65, Wednesday's closing price, and that dividends are taken in cash as well as paid and increased on the schedule Sherwin-Williams has usually followed. IRR P/E Level 5 Year 10 Year 35 20.7% 12.5% 30 16.5% 10.8% 25 11.8% 8.7% 22.5 9.1% 7.5% 20 6.3% 6.3% 15 -0.4% 3.2% Source: Author Additionally I use the MARR analysis framework to work backwards in order to determine the maximum that I could pay for shares today in order to generate the returns that I desire from my investments. My standard hurdle rate is a 10% IRR and for Sherwin-Williams I'll also examine 12% and 8% return thresholds. Purchase Price Targets 10% Return Target 12% Return Target 8% Return Target P/E Level 5 Year 10 Year 5 Year 10 Year 5 Year 10 Year 35 $360 $298 $335 $254 $388 $350 30 $310 $258 $288 $221 $334 $303 25 $260 $219 $242 $187 $280 $257 22.5 $235 $199 $219 $171 $253 $233 20 $210 $179 $195 $154 $226 $210 15 $160 $140 $149 $120 $172 $163 Source: Author How Did We Get Here? There's usually a stark difference between the underlying business results and the returns that investors are able to earn. I like the concept of looking at a business over time compared to the returns the stock provided to try and distill out what returns were justified by the business versus what was due to the sentiment change by investors. Between December 31, 2012 and December 31, 2021 Sherwin-Williams' share price rose from $51.27 to $352.16. That's a very impressive 586.8% total gain across 9 years or a 21.3% CAGR in share price. Adding in the 1.0% yield from the start brings the total CAGR to around 22.3% over that time.

Aug 28
Calculating The Intrinsic Value Of The Sherwin-Williams Company (NYSE:SHW)

Calculating The Intrinsic Value Of The Sherwin-Williams Company (NYSE:SHW)

Today we'll do a simple run through of a valuation method used to estimate the attractiveness of The Sherwin-Williams...

Aug 16

Sherwin-Williams: Dividend Growth Prospects Are Absolutely Fantastic

Sherwin-Williams' brand recognition in the paint, coatings and related products market has helped it take advantage of an improving home improvement market in recent years. The Dividend Aristocrat has increased its dividend over the past 40+ consecutive years after adjusting for stock splits. The company’s free cash flow generating abilities are impressive, and we expect Sherwin-Williams will continue to grow its dividend at a rapid clip in the coming years. Though shares of Sherwin-Williams are about fairly valued on the basis of our discounted cash-flow process, we think the company should be on everyone's dividend growth radar. Sherwin-Williams yields ~0.9% at the time of this writing, and while this may not be that high to turn heads, its dividend growth prospects are absolutely fantastic. By The Valuentum Team Sherwin-Williams' (SHW) brand recognition in the paint, coatings and related products market has helped it take advantage of an improving home improvement market in recent years. The Dividend Aristocrat has increased its dividend over the past 40+ consecutive years after adjusting for stock splits. The company’s free cash flow generating abilities are impressive, and we expect Sherwin-Williams will continue to grow its dividend at a rapid clip over the coming years. Though shares of Sherwin-Williams are about fairly valued on the basis of our discounted cash-flow process, we think the company should be on everyone's dividend growth radar. The company yields ~0.9% at the time of this writing. Sherwin-Williams' Key Investment Considerations Image Source: Valuentum Sherwin-Williams makes and sells paint, coatings and related products to professional, industrial, commercial and retail customers primarily in North and South America with additional operations in the Caribbean region, Europe and Asia. It completed a 3:1 stock split in 2021. The company was founded in 1866 and is headquartered in Cleveland, Ohio. Sherwin-Williams bought Valspar for ~$11.3 billion in an all-cash transaction in 2017. It has achieved hundreds of millions in annual run-rate cost synergies since then and meaningful cash flow improvements have been evident, too. Valspar's business brings with it new growth opportunities including in the areas of coil and packaging, as well as an enhanced geographic footprint in growth markets such as in the Asia-Pacific region. Management has its work cut out for it in deleveraging the balance sheet, however. The company has a sizable net debt load on the books. Sherwin-Williams is home to well-known paint, coating, and sealer brands with ample pricing power. It has the #1 architectural paint brand [SWP], the #1 stain (Minwax), the #1 aerosol paint (Krylon), the #1 auto specialty paint (Dupli-Color), the #1 painting tool brand (Purdy), and the #1 wood sealer (Thompson's). Sherwin-Williams is a Dividend Aristocrat and has raised its dividend over the past 40+ consecutive years. The company’s ability to generate free cash flows in almost any operating environment is impressive, and its growth outlook is quite bright, despite some recent near term hiccups that caused management to lower its adjusted diluted earnings per share guidance this year. We love Sherwin-Williams' pricing power. During the company's second-quarter 2022 earnings press release, management responded to inflationary pressures by raising prices in The Americas Group by 10%, a hike that will take place in early September. The company also noted in the press release that there will be "significant additional pricing actions... taken in (its) other two operating segments." Sherwin-Williams' Economic Profit Analysis The best measure of a company's ability to create value for shareholders is expressed by comparing its return on invested capital with its weighted average cost of capital. The gap or difference between ROIC and WACC is called the firm's economic profit spread. Sherwin-Williams' 3-year historical return on invested capital (without goodwill) is 39.9%, which is above the estimate of its cost of capital of 8.6%. As such, we assign Sherwin-Williams a ValueCreation rating of EXCELLENT. In the chart below, we show the probable path of ROIC in the years ahead based on the estimated volatility of key drivers behind the measure. The solid grey line reflects the most likely outcome, in our opinion, and represents the scenario that results in our fair value estimate. Sherwin-Williams remains a fantastic economic-value generator. Image Source: Valuentum Sherwin-Williams' Cash Flow Valuation Analysis Image Source: Valuentum We think Sherwin-Williams is worth $256 per share with a fair value range of $192.00 - $320.00. Shares of Sherwin-Williams are trading at about our fair value estimate at the time of this writing. The margin of safety around our fair value estimate is driven by the firm's MEDIUM ValueRisk rating, which is derived from an evaluation of the historical volatility of key valuation drivers and a future assessment of them. Our near-term operating forecasts, including revenue and earnings, do not differ much from consensus estimates or management guidance. Our model reflects a compound annual revenue growth rate of 5.9% during the next five years, a pace that is higher than the firm's 3-year historical compound annual growth rate of 4.4%. Our valuation model reflects a 5-year projected average operating margin of 18.1%, which is above Sherwin-Williams' trailing 3-year average. Beyond year 5, we assume free cash flow will grow at an annual rate of 2.7% for the next 15 years and 3% in perpetuity. For Sherwin-Williams, we use an 8.6% weighted average cost of capital to discount future free cash flows. Image Source: Valuentum Image Source: Valuentum Sherwin-Williams' Margin of Safety Analysis Image Source: Valuentum Our discounted cash flow process values each firm on the basis of the present value of all future free cash flows. Although we estimate the firm's fair value at about $256 per share, every company has a range of probable fair values that's created by the uncertainty of key valuation drivers (like future revenue or earnings, for example). After all, if the future were known with certainty, we wouldn't see much volatility in the markets as stocks would trade precisely at their known fair values. This is an important way to view the markets as an iterative function of future expectations. As future expectations change, so should the company's value and its stock price. Stock prices are not a function of fixed historical data but rather act in such a way to capture future expectations within the enterprise valuation construct. This is a key part of our book Value Trap: Theory of Universal Valuation.

Shareholder Returns

SHWUS ChemicalsUS Market
7D-3.1%-1.2%-2.5%
1Y-28.2%-15.4%-23.2%

Return vs Industry: SHW underperformed the US Chemicals industry which returned -15.4% over the past year.

Return vs Market: SHW underperformed the US Market which returned -23.2% over the past year.

Price Volatility

Is SHW's price volatile compared to industry and market?
SHW volatility
SHW Average Weekly Movement5.0%
Chemicals Industry Average Movement6.4%
Market Average Movement6.8%
10% most volatile stocks in US Market15.5%
10% least volatile stocks in US Market2.8%

Stable Share Price: SHW is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 5% a week.

Volatility Over Time: SHW's weekly volatility (5%) has been stable over the past year.

About the Company

FoundedEmployeesCEOWebsite
186661,031John Morikishttps://www.sherwin-williams.com

The Sherwin-Williams Company develops, manufactures, distributes, and sells paints, coatings, and related products to professional, industrial, commercial, and retail customers. It operates through three segments: The Americas Group, Consumer Brands Group, and Performance Coatings Group. The Americas Group segment offers architectural paints and coatings, and protective and marine products, as well as OEM product finishes and related products for architectural and industrial paint contractors, and do-it-yourself homeowners.

The Sherwin-Williams Company Fundamentals Summary

How do Sherwin-Williams's earnings and revenue compare to its market cap?
SHW fundamental statistics
Market CapUS$52.77b
Earnings (TTM)US$1.75b
Revenue (TTM)US$20.78b

30.1x

P/E Ratio

2.5x

P/S Ratio

Earnings & Revenue

Key profitability statistics from the latest earnings report
SHW income statement (TTM)
RevenueUS$20.78b
Cost of RevenueUS$12.26b
Gross ProfitUS$8.52b
Other ExpensesUS$6.77b
EarningsUS$1.75b

Last Reported Earnings

Jun 30, 2022

Next Earnings Date

n/a

Earnings per share (EPS)6.81
Gross Margin41.01%
Net Profit Margin8.45%
Debt/Equity Ratio476.8%

How did SHW perform over the long term?

See historical performance and comparison

Dividends

1.2%

Current Dividend Yield

34%

Payout Ratio