Sherwin-Williams Company (NYSE:SHW) is the largest manufacturer of paints in the United States and has over 3,800 stores in North and South America. The company is dependent on several factors, but the greatest may be the housing market, and new constructions in particular. When examining Sherwin-Williams Company (NYSE:SHW)’s revenue over the years, you can see how revenues rose and fell with the housing bubble, and are beginning to rise again. However, at the current high valuation, is Sherwin-Williams Company (NYSE:SHW) a good buy for your portfolio, or should investors consider another way to profit from the rebounding housing market?
Sherwin-Williams Company (NYSE:SHW) operates its business through four segments, the largest of which is the Paint Stores segment, which accounts for 57% of the company’s sales. The company’s stores sell a variety of paints, stains, and accessories to professionals and do-it-yourselfers. The company is considered the “greenest” of the major paint manufacturers, and they pride themselves on their environmentally friendly paints and stains.
The Consumer segment (14% of sales) makes a variety of paints under various brand names for sale at both the company’s paint stores as well as through third-party retailers. Sherwin-Williams Company (NYSE:SHW) is the parent company of such brands as Dutch Boy, Krylon, Minwax, Thompson’s Water Seal, and several others. The Global Finishes segment accounts for 21% of its sales and produces and distributes paints and coatings for the automotive and aviation markets. Finally, the Latin America Coatings segment accounts for the other 9% of sales and markets; it distributes and sells the company’s products through 276 stores in a number of Latin American countries.
Growth, acquisitions, and valuation
Sherwin-Williams Company (NYSE:SHW) has grown recently through a series of strategic acquisitions as well as by opening new stores in its existing markets. Most notably, last year the company acquired Comex for $2.34 billion, a leading paint and coatings manufacturer in Mexico. The company is also beginning to venture into the Asian markets with its acquisition of Jiangsu Pulanna Coating Co, which is an automotive finishes manufacturer in China. The company has expressed its interest in continuing to make acquisitions to grow its global footprint.
Also, as mentioned previously, Sherwin-William’s primary driver of U.S. growth is the recovery in the housing market, with analysts projecting a 13% rise in sales this year, due to improvement in residential construction and 70-80 new stores opening. As a result, the company is projected to earn $7.75 per share this year, up 19.4% from last year and representing a P/E ratio of 23.6 times this year’s earnings. Earnings are expected to grow nicely to $9.04 and $10.19 in 2014 and 2015, respectively, on a combination of stronger U.S. demand and aggressive international expansion by the company. This projected three-year average annual earnings growth rate of 16.2% certainly justifies the valuation of the company and then some.