Argus Upgrades Sherwin-Williams To Buy Following Pullback

Argus’ Jim Kelleher believes that the 15 percent pullback in Sherwin-Williams Co SHW shares from their recent highs presents an attractive buying opportunity and that the stock deserves to trade at a premium, given the company’s superior growth prospects.

Kelleher upgraded the rating on the company to Buy.

“We also believe Sherwin-Williams is well-positioned as the housing recovery matures, home owners seek to improve the value of existing homes, and contractors build high-quality new homes,” the analyst mentioned.

Kelleher went on to say that Sherwin-Williams was a well-run company that was expected to continue to grow earnings over the coming several years, as the company leverages its “relatively modest” sales growth through increased efficiencies, capital allocation strategies that include buybacks and expansion into new markets.

The Valspar Acquisition

In addition, the proposed acquisition of The Valspar Corp VAL appears to be on track and is expected to help Sherwin-Williams expand internationally, enter new businesses, especially industrial coatings, and reduce its relative reliance on consumer markets.

At the same time, the acquisition is likely to lead to a meaningful increase in debt, which could contribute to earnings volatility, although Sherwin-Williams’ robust cash flows are likely to cover the higher interest costs.

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