Valspar Slightly Hit By KeyBanc Bearishness

KeyBanc Capital Markets’ Ivan M. Marcuse downgraded the rating for The Valspar Corp VAL to Sector-Weight, saying that the company’s current stock valuation fairly reflected its positives and negatives.

The impact of tough global industrial markets, including China, and an increasingly competitive environment at Lowe's Companies, Inc. LOW are likely to be offset by share gains, productivity improvements, raw material benefits and moderating forex headwinds, analyst Ivan Marcuse said.

Challenging Backdrop

Results from Valspar’s Paints segment are likely to improve sequentially in 2Q16 due to seasonal inventory restocking and channel filling by customers. Marcuse said, however, that the company may face increased competition at Lowe’s, with the addition of the HGTV Infinity line.

Other headwinds likely to impact Valspar’s performance include a slowing of industrial international markets, especially China. Nearly 50 percent of Valspar’s sales are outside of North America, with China representing nearly 15 percent.

The analyst expects Valspar to record increased sales at Ace and B&Q and market share gains in BPA free packaging, besides several markets within its industrial coatings segment. “The roll-out of Cabot stains at Lowe’s and Home Depot should also positively impact results in Paints,” the analyst wrote.

The EPS estimate for FY17 has been reduced from $5.60 to $5.35 to reflect lower growth and contribution margin assumptions.