Sherwin-Williams (SHW) is a company operating in general building materials industry (mainly paint stores). Company was founded in 1866 year. The close peer is PPG Industries which I described few weeks ago (find out more). Company owns more than 4 000 stores, way ahead of Home Depot or Lowe’s (find out more)

The most important brands are presented below:

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Over the last years company improved margins:

  • Lower cost of input (oil related products)
  • Economy of scale
  • Improving situation in economy (construction segment)
  • Development of high margin segments

This combined with low capex business allowed company to buyback millions of shares and pay significant dividends over last years:

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As it comes to financials (estimates):

Market cap ~ $24B

Net debt ~$2B

Payout ratio ~25%

Beta = 0.9

Dividend yield 1.3% + buyback 3.5m shares ~ 3.6% buyback yield

 

Estimated valuation ratios:

EV/EBITDA = 12.9

P/E = 20.5

 

Sherwin-Williams (SHW) is one of The Dividend Aristocrats with an awesome history of increasing dividend payments since 1979 year.

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Currently dividend yield is around 1.3%  – not enough for me taking into account that historically company was paying 2-3% dividend yield. Moreover in last year buyback was lower than in 2014 so maybe management thinks that shares are overvalued?

 

Drawdown risk analysis:

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Drawdown is not so high and valuation multiples are high. Moreover dividend yield is low in my opinion. I will wait for recession to buy shares of Sherwin-Williams. I think that 2.0% dividend yield, 9 times EBITDA and 14 times earnings wolud be a strong buy for this business. This means $170 as my target entry point (levels last seen in 2013).

 

Summing up, Sherwin-Williams is a business which every long term investor should have in portfolio. The question is share price, which is in my opinion currently too high.

 

Disclaimer SHW – no position