Sherwin-Williams (NYSE: SHW) looks to shine, despite housing slide

Housing slumps generally aren’t helpful for paint companies. That’s because there are fewer people buying houses that they might want painted, and current homeowners may be unenthusiastic about new paint jobs.

But that hasn’t been the case for Sherwin-Williams (NYSE: SHW) during the current housing downturn. Founded in 1866, it’s the world’s largest paint and coatings company by revenue. It has more than 5,000 of its own stores.

The company’s stock has gained 9.5% over the past year, slightly above the 9.3% climb for the S&P 500. (To be sure, Sherwin-Williams shares have dropped 7% over the past week after a ratings downgrade by Citigroup.)

As for the company’s strengths, you can start with high-quality paint, which explains why it has been in business for almost 160 years. 

‘Most trusted brand’

“Sherwin-Williams is one of the most trusted brands in the residential paint industry, producing high quality products sold at premium prices,” wrote Morningstar analyst Spencer Liberman.

“Its paint is well known in the industry for having desirable characteristics, including coverage (fewer coats needed), durability (lasts longer), cure time (less waiting time), and ease of application.” Cure time is the amount of time it takes for a paint to fully harden, rather than just to dry.

The ubiquity of Sherwin-Williams stores makes it convenient for pro painters to do business there. It opened 95 new stores last year. For do-it-yourselfers, the company also sells its paints in an exclusive agreement with Lowe’s (NYSE: LOW) and at Menards, the third largest US home improvement chain.

On the pro-painter side, Sherwin-Williams benefits from the fact that the pros are more concerned about quality, ease of use, and availability than paint costs, according to Liberman. That’s because labor accounts for 80%-90% of their costs and materials just 10%-20%. So they’re willing to pay up for Sherwin.

Small impact from tariffs

The company also has limited exposure to tariffs. “Approximately 80% of our consolidated revenue is in the US, with less than 2% in China,” Sherwin CEO Heidi Petz said in the company’s April earnings call. 

“In addition, the vast majority of our raw materials are sourced in the region where we are manufacturing. Whenever there is disruption, there is significant opportunity to demonstrate what makes Sherwin-Williams so unique.”

So Sherwin-Williams seems to paint a pretty picture now. “Despite their end market remaining weak, Sherwin has shown the ability to protect margins and grow market share,” Joseph Ghio, an analyst at Williams Jones Wealth Management, told Barron’s.

But keep in mind that the company isn’t totally immune from the housing market swoon. Its sales dipped 1.1% in the first quarter from a year earlier. There’s no guarantee Sherwin will perform well or that the stock will rise.