Despite strength in the coating industry, Sherwin-Williams Co SHW has low relative value and a lack of focus on shareholder returns, according to BofA Securities.
The Sherwin-Williams Analyst: Daniel Lungo initiates coverage of Sherwin-Williams with an Underweight rating.
The Sherwin-Williams Thesis: The company is poised to benefit from strong coatings demand, which is being driven by repair, remodel and new home construction, a recovery in industrial coatings end-markets and a shift from DIY (do-it-yourself) projects to contractors, Lungo said in the initiation note.
“Although increasing raw material costs are concerning, SHW should be able to partially offset them through cost savings initiatives and eventually pass the costs through,” he added.
“The strong industry tailwinds should allow SHW to generate substantial free cash flow, which has historically been split between M&A, share repo, and debt management … We note that SHW could pay down its ~$650mm of maturities in 2022, but share repo and small bolt-on acquisitions are the more likely uses of cash,” the analyst wrote.
Lungo further mentioned, “On a relative value basis, we believe SHW trades at fair value compared to its coatings peers, although we note the overall liquidity of the comparable outstanding bonds is very poor and makes a comparison difficult.”
SHW Price Action: Shares of Sherwin-Williams had risen by 0.13% to $273.46 at the time of publication Tuesday.
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