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Morgan Stanley: Same-Store Sales, Lower Cost Of Goods Sold Lining Sherwin-Williams Up For Outperformance

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Morgan Stanley analysts released an investor note on Sherwin-Williams Co (NYSE: SHW) on Tuesday ahead of the company's fiscal second-quarter earnings, expected to be released on Thursday prior to the opening bell. The firm's analysis suggests Sherwin-Williams will meet or exceed recently raised same-store sales guidance.

The analysts wrote, "combined with lower COGS, both positive EPS revisions and stock outperformance should continue."

Morgan Stanley has an EPS estimate of $4.35 for Q2, head of consensus expectations of $4.16. The analysts are modeling same-store sales growth in the quarter of 6.8 percent which is in-line with the Street's view that same-store sales will grow in the 5-7 percent range, year over year. Heading into the quarterly earnings release, Morgan Stanley analysts remain bullish on the stock, reiterating an Overweight rating and $322 price target.

Investors that are trading in the shares ahead of the company's earnings will want to key in on a couple of important data points for the second quarter.

The above mentioned same-store sales data will likely be a lever for the stock price, with Morgan Stanley arguing that anything below 5 percent will be a disappointment. Investors will also want to pay close attention to Sherwin-Williams' guidance. Currently, Morgan Stanley is modeling full-year EPS of $13.21, significantly above the consensus estimate of $12.67. Updated full-year sales guidance is likely as the company's current revenue outlook implies negative to flat growth in the back half of the year. If Sherwin-Williams revises this estimate higher, it will likely be a lever for the stock price.

On Tuesday, shares climbed 0.52 percent to close at $308.85. Investors have been aggressively accumulating the stock in recent months as Wall Street's view on the company's Q2 performance has turned bullish. Sherwin-Williams is trading at the top of its 52-week range, very close to an all-time high. A very strong quarter could trigger a powerful breakout in the shares which are already having a great 2016, rising 19 percent.

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