Buy Sherwin-Williams, Sell Valspar? These Guys Are

Citi's P.J. Juvekar upgraded the rating for Sherwin-Williams Co SHW from Neutral to Buy, while raising the price target from $281 to $316. He expects the company's shares to be driven by the good response to the company's Infinity product line at Lowe's Companies, Inc. LOW stores. Although the EPS impact from the Infinity paint will be modest this year, it represents a significant gain for Sherwin-Williams, Juvekar commented. The HGTV Infinity Paint would be the premier price-point at Lowe's, a place that was previously occupied by Valsper Reserve from The Valspar Corp VAL. Juvekar maintained a Neutral rating for Valspar, while reducing the price target from $88 to $85. He expects the company to lose more business at Lowe's this year. "Plus, we think investors remain concerned about VAL's industrial exposure and uncertainties in China (Asia is ~16% of sales)," the analyst added. A significant rebound in the spring volumes in 2Q and 3Q painting season and reduced raw material costs are also expected to have a positive impact on Sherwin Williams' near-term performance. "Overall, we model a 100bps increase in segment operating margins in 2016 following a 210bps increase in 2015," the Citi report stated. "We think SHW shares offer a good mix of offensive (growing sales, margins) and defensive (US-focused, less volatile earnings over the cycle) characteristics," Juvekar wrote. The 2016 and 2017 EPS estimates for Sherwin-Williams have been raised from $12.40 to $12.60 and from $13.52 to $14.35, respectively.