On Tuesday, RBC (TSX:RY) Capital Markets adjusted its price target for Sherwin-Williams (NYSE:SHW) stock, listed on the New York Stock Exchange under the ticker NYSE:SHW, reducing it to $438 from the previous $446. Despite the lowered target, RBC maintained an Outperform rating on the company's shares.
According to InvestingPro data, the company currently shows strong financial health with an overall score of 'GOOD', supported by robust profitability metrics. The RBC analyst anticipates a fourth-quarter performance that aligns with expectations and forecasts mid-single-digit percentage growth in EBITDA and high-single-digit percentage growth in EPS for the fiscal year 2025.
The analyst's outlook for Sherwin-Williams highlights stable Performance Coatings Group (PCG) sales, compensating for weaker Consumer/DIY sectors and uneven results in other PCG areas such as coil, Product Finishes/Marine/Wood, and stable Packaging/Refinish, with softness seen in automotive and general industrial segments.
The company maintains a healthy financial position with a current ratio of 2.0, indicating strong ability to meet short-term obligations. Discover more insights about SHW's financial health with a InvestingPro subscription, which includes exclusive analysis and 12+ additional ProTips.
Sherwin-Williams is favored by RBC for its potential volume growth, driven by market share gains, including an anticipated $100-200 million from Kelly-Moore and a possible $300 million or more from PPG (WA:IBSP)'s North American Architectural sale over the coming years.
Sherwin-Williams is expected to benefit from volume growth due to anticipated interest rate cuts, which could increase new and existing home sales in fiscal year 2025. The company is also predicted to continue achieving price and mix gains by transitioning customers to higher-priced and higher-value products, including a 5% price increase in its Performance Coatings Group in January 2025.
The company's financial strategy remains focused on staying within its long-term leverage target range of 2.0x to 2.5x.
With an EBITDA of $1.06 billion in the last twelve months, Sherwin-Williams has a policy of not retaining cash, leading to prioritized capital allocation towards capital expenditures below 2% of sales, dividend growth to maintain a 30% net income payout, potential strategic mergers and acquisitions, and the use of excess cash for share buybacks.
For comprehensive analysis of SHW's financial strategy and future prospects, access the detailed Pro Research Report available on InvestingPro.
In light of these factors, RBC has slightly revised its EPS estimates for Sherwin-Williams downward for the fourth quarter of fiscal year 2024 and fiscal year 2025 to $1.97, $11.20, and $12.50 respectively, from the previous estimates of $2.02, $11.25, and $12.75.
The price target adjustment to $438 is based on an unchanged 35 times the forecasted FY25 earnings per share.
In other recent news, Axalta Coating Systems (NYSE:AXTA) has experienced several significant developments. The company has been downgraded from Buy to Neutral by Citi, due to potential challenges in the commercial vehicle and industrial coatings sectors.
However, Axalta reported record net sales of $1.32 billion in its third quarter 2024 earnings call, marking 15 consecutive quarters of year-over-year growth. The company also successfully renegotiated the terms of its existing credit agreement, effectively lowering the interest rate spread on the term loan from 2.00% to 1.75%.
Several analysts have expressed confidence in Axalta's trajectory. BMO (TSX:BMO) Capital raised Axalta's stock price target to $48.00, Evercore ISI assigned an Outperform rating with a price target of $47, RBC Capital increased the price target to $46, and KeyBanc raised its price target on Axalta to $45. These adjustments reflect the analysts' belief in Axalta's growth potential, despite some market challenges.
Axalta's acquisition of CoverFlexx has also been identified as a significant growth driver, particularly in the refinish business.
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