Valspar May Be Way To Play China Woes

In a report published Tuesday, JP Morgan analyst Jeffrey J. Zekauskas downgraded the rating on

from Overweight to Neutral, while lowering the price target from $92 to $88. The analyst believes that there could be risk to the company achieving the EPS guidance and consensus expectations for 3Q15. Several of the company's peers have reported factors that have impacted their volumes in North America. "In addition, we note that the rate of economic growth in China has also decelerated, and Valspar will compare itself to a relatively strong 2H:F14 China performance. All of these factors can bear on Valspar revenue growth and profits," according to the JP Morgan report. However, the analyst expects the company to benefit from the decline in raw material costs, which could potentially offset the weak volumes. Also, Valspar might be able to perform better than

in

stores, given that Sherwin-Williams is a new entrant in the market, vying for a share at Lowe's. "We would not be surprised were Valspar to experience price pressure from Lowe's toward the end of the calendar year as customers ask to share the benefits of lower raw materials," Zekauskas said. While the analyst expressed some concern regarding the share price performance in the next quarter, the stock appears to be an appealing long term investment option. The 3Q15 EPS estimate has been lowered to below the consensus forecast, while the consolidated sales estimate has also been lowered due to incremental softness across the company's geographic operations and product categories. The F015 and F016 EPS estimates have also been lowered.