Sherwin-Williams May Set Records This Year

Longbow’s Dmitry Silversteyn upgraded the rating on Sherwin-Williams Co SHW from Neutral to Buy, with a price target of $340.

Paint Market Returns To Growth

Longbow’s research suggests that the North American paint market saw solid growth in 1Q16, with contacts indicating volume growth of over 3 percent year on year, on average.

Silversteyn mentioned that Sherwin-Williams’ stores are “benefiting from stronger residential and commercial construction markets as well as more conducive weather that is driving strong 6-7 percent YoY growth in same store sales, indicating 2015 slowing may have indeed been due in large part to weather.”

The analyst explained that the company has significant exposure to the North American paint market, which has returned to robust growth. This, along with the higher volumes driving margin expansion, is expected to lead to higher than expected EPS in the coming quarters.

Margin Upside

“Weather, new products and a stronger construction market in North America appear to combine to prolong the above-trend growth of the domestic paint industry that should lead to outsized growth for SHW that can be conducive to multiple expansion,” Silversteyn elaborated.

After having entered the DIY channel in 2015 with the HGTV launch, Sherwin-Williams expanded its offering among retailers with the launch of Infinity, which the analyst pointed out would be the highest priced paint within LOW.

Silversteyn expects the company to see higher margins in its Consumer Group business in 2016, despite tough 2Q16 comp, while margins are expected to lead to a 1Q16 EPS beat.