The Risks For Sherwin-Williams Are Real; Longbow Downgrades Stock

• Shares of Sherwin-Williams Co. SHW have declined 18.14 percent in the last six months.
• Longbow’s Dmitry Silversteyn has downgraded the company from Buy to Neutral.
• Silversteyn believes that there is risk to the company’s 2Q15 results, as well as a possibility that the 2015 guidance would be revised down towards the lower end of the range.

According to the Longbow report, the “lack of post-rain acceleration in paint sales in North America suggests below-expectation results in 3Q15 that can lead to lowered 2015 guidance and a more conservative consensus outlook for 2016.”

Silversteyn believes that the North American paint market has been growing at a lower than expected rate in 3Q15, implying that weather was not the only reason for the weak demand in 2Q15. The Q3 trends appear to be a continuation of the trends seen in Q2.

The below expectations growth is also expected to pressure the stock for the remainder of 2015, while investors look for a more favorable entry point.

The EPS estimates for 2H15 and 2016 have been lowered due to “little evidence that improved weather generated a recovery in sales,” which in turn implies a general slowdown in demand growth for paint in 2015 in North America. Silversteyn expects this to lead to lower expectations for 2016 as well.