SHERWIN-WILLIAMS CO. $246 (New York symbol SHW; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 96.0 million; Market cap: $23.6 billion; Price-to-sales ratio: 2.2; Dividend yield: 0.9%; TSINetwork Rating: Above Average; www.sherwin-williams.com) is North America’s largest paint and varnish producer.
Sherwin sells to consumers through over 4,100 company-owned stores in the U.S., Canada and Latin America. It also distributes its products through other retailers and makes paint for carmakers and other industrial users.
In September 2013, the company paid $165 million for Mexican paint maker Comex’s U.S. and Canadian operations, including 314 stores.
The move increased Sherwin’s sales by 10.6% in the three months ended September 30, 2014, to $3.15 billion from $2.85 billion a year earlier. Accelerating new home construction also spurred sales.
Earnings jumped 24.1%, to $326.2 million from $263.0 million. The company spent $1.1 billion on share buybacks in the first nine months of 2014. As a result, earnings per share gained 31.4%, to $3.35 from $2.55.
Sherwin holds cash of $261.3 million, or $2.72 a share. Its longterm debt of $1.1 billion is a low 5% of its market cap.
The new Comex stores will probably lose $0.28 a share in 2014 as Sherwin integrates them with its existing network. However, lower costs for petrochemicals, a key ingredient in paint, will help increase its full-year earnings to $8.83 a share, up 17.9% from $7.49 in 2013.
The stock trades at 27.9 times the 2014 estimate. That’s a high p/e ratio for a company that’s closely linked to the uncertain U.S. housing market. The $2.20 dividend yields 0.9%.
Sherwin-Williams is a hold.
