The paints and coatings company looks especially resilient in a tough housing market. It's set to outshine competitors. By Teresa Rivas

A fresh coat of paint can transform a room. A fresh look at Sherwin-Williams stock can boost a portfolio.

The paint maker has been on a tear over the past year. Although the housing market remains difficult -- as many buyers remain priced out due to high interest rates, low affordability, and a shortage of supply, and sellers are left with lower prices -- that hasn't stopped homeowners from painting, particularly when those pandemic-era shades start to look dated.

At the same time, several of Sherwin-Williams' erstwhile competitors have fallen by the wayside, leaving more market share for the Cleveland-based company. And paints and coatings are often made and sold locally in the U.S., providing some insulation from tariffs.

All told, the stock, at a recent $360.73, is up some 23% in the past 12 months, and it is outperforming the S&P 500 index so far in 2025. That's in part because, like a new hue on a cracked wall, tough times have only helped Sherwin-Williams shine.

"I still love Sherwin-Williams," says Joseph Ghio, an analyst at Williams Jones Wealth Management. "What continues to impress us is despite their end market remaining weak, Sherwin has shown the ability to protect margins and grow market share. While competitors slow down investment, Sherwin has stepped on the gas, increasing their new-store count growth and winning market share annually as competitors become bankrupt or divest their stores business."

If the Federal Reserve does lower interest rates -- however modestly -- in 2025, as many investors expect, Sherwin-Williams' earnings growth could pick up alongside home sales, even if lack of supply remains an impediment to a real boom.

"As interest rates decline, housing turnover and completions should return to normal growth, considering we are five million homes underserved in North America," notes Ghio. "Once rates stabilize and homes start to turn over and new homes are built, Sherwin has positioned themselves for rapid earnings growth." In addition, the company's quick delivery times, driven by logistics investments and innovative paints that require fewer coats, help lower contractors' costs.

That helps to explain the improving profit outlook for Sherwin. Analysts predict earnings per share will jump 11.6% year over year to $13.30 in 2026, after growing just over 5% this year.

The stock looks attractive even without a big rebound in housing, according to Andrew Choi, a portfolio manager at Parnassus Investments.

He believes that earnings can compound in the mid-to-high-teens over time because, although end-market demand may remain volatile, Sherwin-Williams is poised to reap the benefits of big investments in its business over the past two years. On the company's most recent earnings call, management reiterated that modernizing systems, expanding digital capabilities, and training the sales force are starting to yield efficiencies. Choi noted that there is evidence that these investments are contributing to margin expansion and market share gains, especially in the Paint Stores Group, which has outperformed a flat market and gained market share.

Ghio is similarly upbeat about the market share opportunity, as the company's primary competitor, PPG Industries, sold off its architectural coatings and silica businesses late last year, and smaller rival Kelly-Moore Paints ceased operations in January. "The constant demand is there and theirs for the taking," he says.

So is pricing power, with fewer options for do-it-yourself and enterprise customers alike.

"Big picture, the company's competitors are either exiting markets or distracted, while Sherwin-Williams has been investing consistently," says Choi. "This is aligned with their historical track record of market share gains."

The stock has always commanded a premium, so while its current valuation of just over 29 times forward earnings may not seem like a steal, it's not far above its five-year average.

Moreover, Choi notes, that earnings multiple includes nearly $2 per share of front-loaded selling, general, and administrative investments that haven't played out yet. Factoring that in means Sherwin-Williams' true 2025 earnings power is higher -- about $14 a share -- and its valuation around 26 times.

The question of tariffs is ongoing, but it doesn't appear to be as much of a problem for Sherwin-Williams as other chemical peers. Although its business could take an indirect hit from consumers and businesses taking a wait-and-see approach, multiple analysts have highlighted it in recent months as selling locally made products to customers, rather than relying on overseas supply chains.

Sherwin-Williams is looking to beef up its environmental bona fides too, with targets to get half of its electricity from renewable resources by 2030, along with reducing its greenhouse-gas emissions and waste disposal footprint.

Earlier this month, Morgan Stanley analyst Vincent Andrews reiterated an Overweight rating and $385 price target on the shares, writing that its revenue growth and margin expansion will be stronger than many expect, "which could further separate its earnings multiple from traditional paint and coatings companies and home improvement retailers." Instead, he argues, it could ultimately be valued like high-quality business services stocks Cintas and Rollins, which command forward price/earnings multiples of more than 40 times.

The stock's future returns look to be glossy.

Write to Teresa Rivas at teresa.rivas@barrons.com

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June 13, 2025 21:30 ET (01:30 GMT)

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