SHERWIN-WILLIAMS CO. $61 (New York symbol SHW; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 116.3 million; Market cap: $7.1 billion; Price-to-sales ratio: 1.0; WSSF Rating: Above Average) is North America’s largest paint producer. The company gets 60% of its sales from its over 3,300 paint stores.
The slowdown in new U.S. housing construction has hurt demand for Sherwin’s paints. As well, many consumers have put off home-renovation projects because of the recession.
In the three months ended June 30, 2009, Sherwin’s earnings fell 8.0%, to $158 million from $171.7 million a year earlier. However, the company is an aggressive buyer of its own shares, so it had fewer shares outstanding during the quarter. As a result, earnings per share fell 6.9%, to $1.35 from $1.45. Sales fell 12.6%, to $1.9 billion from $2.2 billion.
Sherwin continues to expand overseas. These operations now account for 20% of its sales. In August, it opened a new paint plant in southern China. This is Sherwin’s fourth plant in Asia. It plans to build a fifth in northern China. These will help Sherwin profit from rising prosperity in China, which is making it easier for people to redecorate their homes.
The stock fell to $42 last March, but has rebounded to its current price of $61. It trades at 16.8 times Sherwin’s likely 2009 earnings of $3.63 a share. That’s a high p/e ratio in light of the still-fragile U.S. housing market. The $1.42 dividend yields 2.3%.
Sherwin-Williams is a hold.
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