Williams (the author) says investors are overlooking SHW's near-term challenges. Sales of the company's pricey brands, such as Sherwin-Williams, Dutch Boy and Pratt & Lambert, are already down sharply, and analysts expect demand to remain weaker for most of the year, even from do-it-yourselfers. SHW's margins are also being squeezed by high raw-materials costs. CEO Christopher Connor recently admitted that "the catalyst for recovery is simply nowhere in sight."
Bulls like SHW's solid balance sheet and strong cash flow; its 30-year history of dividend increases (current yield 2.8%); and say there are signs housing may be bottoming. Maybe, but the likelihood of a spirited rebound this year seems close to nil. S&P rates shares ($53.55) Sell with a price target of $44; and Longbow analyst Dmitry Silversteyn says his $0.15 EPS estimate (vs. Street $0.21) may still be too high, noting continuing weakness in contractor demand.
SHW is scheduled to report Thursday.
Given the dearth of companies sticking to - and increasing - dividends, David I. Templeton isn't surprised SHW is demanding a premium.
Meanwhile, Herb Morgan thinks stabilizing housing numbers may soon ignite a short squeeze in homebuilder and housing stocks.