The closest peers for Valspar are PPG Industries, Inc. (NYSE:PPG) and Sherwin-Williams Company (NYSE:SHW). PPG Industries, Inc. (NYSE:PPG) has been seeing a temporary bump in earnings, going by recent reports; according to sell-side forecasts, the forward P/E is 16 representing a small premium to Valspar. With its revenue actually flat in the first quarter of 2013 versus a year earlier, we aren’t sure that the $21 billion market cap company is a buy- particularly as it focuses on coatings, which we’ve seen have been a weak point in Valspar’s business. Markets are quite excited about Sherwin-Williams Company (NYSE:SHW), and as a result its stock price has been bid up to trailing and forward earnings multiples of 28 and 19 respectively. While the company’s net income has been up, its sales numbers have also been lukewarm and given the high valuation we think that we would avoid the stock.
To the extent that Valspar might be tied to housing and home improvement, it can also be compared to The Home Depot, Inc. (NYSE:HD) and Lowe’s Companies, Inc. (NYSE:LOW). These two stocks are priced essentially even with each other; for purposes of comparison, Lowe’s Companies, Inc. (NYSE:LOW) is valued at 16 times consensus earnings estimates for the forward fiscal year while Home Depot’s P/E on the same basis is 17. The retailers have beaten the market over the last year, though only The Home Depot, Inc. (NYSE:HD) seems to be actually generating growth in its business: its earnings grew by 19% last quarter compared to a year ago, with a good deal of that strength coming from higher sales, while Lowe’s experienced little change on either top or bottom line over essentially the same period.
We’ll note the insider purchase at Valspar, but we don’t recommend imitating it. The integration risks probably aren’t too significant, but they are there and in addition we aren’t excited about the company’s most recent 10-Q. Of course, Valspar is valued at a discount to many of its peers, but as a value prospect it is quite dependent on paint, and by extension the housing market, and Home Depot may be a purer way to play that thesis at a slightly higher forward P/E.
Disclosure: I own no shares of any stocks mentioned in this article.