Why You Should Hold Onto Sherwin-Williams Stock For Now

The Sherwin-Williams Company SHW is benefiting from strong momentum in its Paint Stores Group segment, pricing and cost-management actions and expansion of operations amid a challenging demand environment.
Shares of Sherwin-Williams have lost 13.5% over the past year against the 12.2% decline of its industry.

Let's find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.

Cost and Expansion Actions Aid SHW

Sherwin-Williams' cost-control initiatives, working capital reductions, supply chain optimization and productivity improvement are expected to provide margin benefits. It is also implementing pricing actions to offset cost inflation, especially in raw materials.
The company is focusing on cost reductions through restructuring, which is expected to provide benefits in 2023. It expects to realize approximately $50-$70 million in estimated annual savings, 75% of which are expected to be realized by the end of 2023.
Moreover, the company remains committed toward expanding its retail operations. It is focused on capturing a larger share of its end-markets, as is evident from increasing number of retail stores.
Sherwin-Williams is also seeing strength in North American professional architectural end markets. It is witnessing higher architectural sales volumes in the Paint Stores Group segment. Net sales from this segment climbed nearly 15% year over year in the first quarter of 2023 driven by a rise in sales volume in all end markets and higher selling prices. The momentum in this segment is likely to continue in the second quarter on higher architectural demand.
The company also has a strong liquidity position and is using its cash strategically. Significant efforts to cut operating costs helped the company to generate strong net cash flows from operations of around $1.9 billion in 2022. The company returned around $1.5 billion to its shareholders through dividends and share buybacks in 2022. It also repurchased 1.3 million shares of its common stock during the most recent quarter.

Demand Softness Ails

The company sees a challenging demand environment in the second half of 2023. It is witnessing weak demand in new residential and the Consumer Brands Group DIY. Demand has softened in Europe due to the sluggish macroeconomic environment. Moreover, the lack of meaningful recovery in China following the lifting of pandemic-led restrictions is also affecting demand.
On the industrial side of the business, SHW is seeing more pressure in North America while Europe and China are yet to fully recover. This is likely to exert pressure on its sales volumes.
The slowdown of the U.S. housing market is also hurting Sherwin-Williams' industrial wood business. Sales in this business fell by mid-single digits in first-quarter 2023, impacted by a slowdown in furniture, cabinetry and flooring related to the weakness in new residential. Revenues from this business are likely to remain under pressure in the second quarter.

Stocks to Consider

Better-ranked stocks worth considering in the basic materials space include L.B. Foster Company FSTR, Gold Fields Limited GFI, and Linde plc LIN.
L.B. Foster currently carries a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for FSTR's current-year earnings has been stable over the past 60 days.
L.B. Foster's earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 140.5%, on average. FSTR has gained around 5% in a year.
Gold Fields currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for GFI's current-year earnings has been revised 23.5% upward in the past 60 days.
The consensus estimate for current-year earnings for GFI is currently pegged at $1.05, reflecting an expected year-over-year growth of 8.3%. Gold Fields' shares have popped roughly 64% in the past year.
Linde currently carries a Zacks Rank #2. The Zacks Consensus Estimate for LIN's current-year earnings has been revised 4.4% upward in the past 60 days.
Linde beat Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 6.9% on average. LIN's shares have gained roughly 8% in the past year.