Wednesday, July 30, 2008

* Stock Analysis: Sherwin-Williams Co (SHW)

Linked here is a PDF copy of my detailed analysis of Sherwin-Williams Co (SHW) (alt.1, alt.2). Below are some highlights from the above linked analysis:


Company Description: Sherwin-Williams Co (SHW) is the largest U.S. producer of paints, is also a major seller of wallcoverings and related products primarily in North and South America with additional operations in the United Kingdom, Europe, India and China.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
  1. Avg. High Yield Price
  2. 20-Year DCF Price
  3. Avg. P/E Price
  4. Graham Number
SHW is trading at a discount to 1.), 2.) and 3.) above. If I exclude the high and low valuation and average the remaining two, SHW is trading at a 12.0% discount. SHW earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
  1. Rolling 4-yr Div. > 15%
  2. Dividend Growth Rate
  3. Years of Div. Growth
  4. 1-Yr. > 5-Yr Growth
  5. Payout 15% of avg.
SHW earned one Star in this section for 3.) above. SHW has paid a cash dividend to shareholders every year since 1979 and has increased its dividend payments for 29 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
  1. NPV MMA Diff.
  2. Years to >MMA.
SHW earned one Star in this section. With a NPV MMA Diff. of $3,722, SHW is above the $3,000 I look for in a company that is both an Achiever and an Aristocrat. With SHW's current yield of 2.70% and its dividend is growing at 11.1%, it would take 10 years for SHW's dividend earnings exceed the earnings from a hypothetical money market account earning 4.61%.

Other: SHW is both an S&P 500 Dividend Aristocrat and a member of The Broad Dividend Achievers™ Index. SHW's business is cyclical in nature. It relies primarily on new housing starts and remodeling. From a risk perspective, SHW is exposed to lead pigment litigation. However, with the Rhode Island Supreme Court overturning a verdict against SHW relating to lead paint, makes future negative rulings less likely.

Conclusion: SHW earned a Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and one Star in the Dividend Income vs. MMA section for a net total of 3 Stars. This quantitatively rates SHW as a 3 Star-Hold.

Using my D4L-PreScreen.xls model, I determined the share price could go up to $54.22 before SHW's NPV MMA Diff. drops to the $3,000 NPV MMA Diff. I like to see. At that price SHW would yield 2.58%. I have added SHW to my watch list.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I do not own shares of SHW (0.0% of my Income Portfolio).

What are your thoughts on SHW?


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