Sherwin-Williams (SHW) Upgraded at J.P.Morgan to 'Overweight' on Higher Earnings Estimates
J.P.Morgan analyst Jeffrey Zekauskas upgraded Sherwin-Williams (NYSE: SHW) to "Overweight" from "Neutral" after raising earnings estimates.
"Sherwin is a high-quality company with pricing opportunities in its core architectural contractor market in 2021, in our view. Sherwin’s strong franchise positions the company well for growth over a longer-period of time. The franchise is so strong that the company was able to increase prices in 2019 and 2020 despite favorable raw material trends," Zekauskas wrote in today's note.
He believes that Sherwin-Williams may announce a price increase later in the fourth quarter or early in 1Q:21 that would facilitate a move higher in the share price.
"The company has been experiencing very strong growth in its Consumer Brands business because of a high rate of growth in the DIY markets as unemployment has jumped and do-it-yourselfers are confined to the house. Investors are concerned about the rate of eventual contraction in the DIY market from this higher level of business. Sherwin has also not yet announced a paint price increase in its stores business.”
The company reported that its sales (on a consolidated basis) rose 5% in the third quarter. Consolidated operating income rose soared 17%.
"Sherwin also experienced sharp margin improvement in its Consumer Brands Group as increases in domestic do-it-yourself (DIY) paint demand led to an estimated ~28% y/y sales growth in its North American architectural paint business in 3Q, ~16% growth in its European architectural paint business, and ~10% in the architectural paint business in Australia. Sherwin also reported improving demand in its industrial operations offshore."
The bank raised its EPS estimates for 2020 and 2021 on greater pricing power following years of brand-building and consolidation.
“We lifted our 2020 EPS estimate for Sherwin-Williams from $23.95 to $24.65, which compares to $21.08 in 2019. Our 2021 EPS forecast is $27.70 (prev. $24.65) reflecting a faster pace of sales growth and margin expansion,” Zekauskas said.
Following the rating upgrade, the analyst also raised the price objective to $740.00 per share from $700.00.