Investing.com -- UBS has downgraded paint and coatings giant Sherwin-Williams to Neutral from Buy, citing a prolonged downturn in the U.S. housing market and concerns that potential acquisitions could weigh on the company's valuation and earnings profile.

The investment bank cut its 12-month price target to $330 per share from $385, arguing that Sherwin-Williams' anticipated earnings recovery is likely to be delayed until at least 2028. UBS now forecasts earnings per share growth of roughly 5% annually over the next two years, significantly below the company's historical growth trajectory.

UBS said Sherwin-Williams remains highly leveraged to the U.S. housing market, particularly through its Paint Stores Group, which accounts for approximately 70% of company earnings. However, elevated mortgage rates, persistent inflation, and poor housing affordability continue to suppress home sales and repaint demand. Analysts believe meaningful improvement in housing activity is unlikely before 2028.

Despite weak end markets, Sherwin-Williams has maintained relatively stable volumes through market-share gains and pricing power. UBS expects pricing increases to continue helping offset inflationary pressures, although they are unlikely to drive significant earnings acceleration in the near term.

A key factor behind the downgrade is Sherwin-Williams' reported participation in a joint bid for parts of Dutch coatings company AkzoNobel. UBS estimates such a deal could ultimately boost earnings by 7–10% after synergies, but warns that it could also increase leverage to more than 3x EBITDA and shift earnings away from the company's higher-growth Paint Stores business toward lower-growth industrial coatings operations.

The bank estimates that a large acquisition could lead investors to assign Sherwin-Williams a lower valuation multiple, potentially causing a share-price derating of around 10%.

While UBS has turned more cautious on the near-term outlook, it remains constructive on Sherwin-Williams' long-term prospects. Analysts argue that once housing markets recover, the company could enter a multi-year period of double-digit earnings growth supported by stronger demand, market-share gains, and easing raw-material costs. UBS forecasts earnings growth accelerating to nearly 20% annually from 2028 onward.

UBS believes the stock lacks a clear catalyst and is likely to remain range-bound until there is greater visibility on a U.S. housing recovery or the company's acquisition strategy.