On Tuesday, Citi analyst Pat Cunningham resumed coverage on Sherwin-Williams (NYSE:SHW), issuing a Buy rating with a price target of $423.00, representing an 18% upside from the current price of $353.03. According to InvestingPro data, the stock appears overvalued based on its proprietary Fair Value model, though analyst targets range from $247 to $430. The analyst highlighted the recent strategic move by Sherwin-Williams, stating, "We have renewed our rating after a period of Rating Suspended with a Buy rating and a target price of $423."
Last week, Sherwin-Williams announced its intention to acquire BASF’s Brazilian architectural paints business for $1.15 billion. The deal is slated for completion in the second half of 2025, pending customary closing conditions and Brazilian regulatory approval. With a market capitalization of $88.55 billion and an overall Financial Health score of "GOOD" from InvestingPro, the company appears well-positioned for this expansion. Sherwin-Williams plans to finance this all-cash transaction through a mix of existing cash, liquidity from current facilities, and new debt. The company anticipates its net leverage will remain within its target range of 2.0 to 2.5 times.
Sherwin-Williams’ CEO Heidi Petz commented on the acquisition, noting that the Suvinil brand, which is part of the BASF business, will be "highly complementary" to Sherwin-Williams. She cited Suvinil’s strong brand recognition, its broad distribution network, which includes paint stores and regional home centers, and the potential for sales acceleration and cost synergies as key benefits of the acquisition.
Citi’s analysis sees the expansion into the Latin American market as a positive move for Sherwin-Williams, although it acknowledges that investors may have concerns regarding the company’s currently limited exposure to the region and the challenging operational environment in Brazil. Despite these potential reservations, Citi’s renewed coverage reflects confidence in Sherwin-Williams’ strategic direction and market positioning.
In other recent news, Sherwin-Williams reported its fourth-quarter 2024 earnings, with an earnings per share (EPS) of $2.09, slightly exceeding analysts’ expectations of $2.07. However, the company’s revenue for the quarter was $5.3 billion, falling short of the anticipated $5.33 billion. The company announced its acquisition of BASF’s Brazilian architectural paint business for $1.15 billion, a move seen as a strategic expansion in Brazil. KeyBanc analysts maintained a Sector Weight rating for Sherwin-Williams, highlighting the fair valuation of the acquisition and anticipating cost synergies. Meanwhile, Moody’s (NYSE:MCO) confirmed that the acquisition would not impact Sherwin-Williams’ credit rating. RBC Capital Markets lowered its price target for Sherwin-Williams to $415 from $438, despite maintaining an Outperform rating, citing conservative guidance for the coming years. Sherwin-Williams anticipates generating significant free cash flow in the next two years, which will aid in managing its debt and investment plans. The company plans to open 80-100 new stores in 2025, reflecting its continued growth strategy despite a challenging market environment.
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