Sherwin Williams: Don't Miss the Boat

While the market may lump Sherwin Williams (SHW) in with the other "housing stocks", both Tuesday's news and their earnings for the past year suggest otherwise...

Can anyone name a "housing stock" that saw earnings in 2007 grow double digits and project further earnings increases in 2008? Industries with huge housing exposure from builders, banks, chemical makers, wall board suppliers, insulation makers, mortgage companies all saw earnings decimated in 2007, with 2008's outlook being spotty at best.

Who has bucked the trend? Sherwin Williams. Why? The US housing market is not the overwhelming driver of earnings at the company, despite what the market thinks. In the past year, Sherwin-Williams has acquired paint and coatings companies in India, Uruguay and Mexico. As of Monday you can add Asia to the list. Sherwin announced that it has signed a definitive agreement to acquire the Liquid Coatings Subsidiaries of Inchem Holdings of Inchem Holdings International Limited headquartered in Singapore. Terms were not released.

Inchem produces coatings applied to wood and plastic products in Asia. These waterborne, solvent-based, and ultraviolet [UV] curable coatings are applied to furniture, cabinets, flooring, and electronic products that are manufactured both for export as well as domestic sale. The coatings are made and sold in China, Vietnam and Malaysia, and distributed to 15 other countries throughout Asia.

CEO Christopher M. Connor said:

...this acquisition reaffirms our commitment to growing globally through organic growth accelerated by strategically important acquisitions. We are pleased to bring Inchem, a well respected company throughout Asia, its plants in China, Vietnam, and Malaysia, and most importantly its people into the Sherwin-Williams family.

George E. Heath, President and General Manager of Sherwin-Williams Chemical Coatings Division, stated,

...we continue to strengthen our growing global platform to better serve the needs of manufacturers in North America and Asia. Inchem supports this mission with great plants, products, and people throughout Southeast Asia.

Many are advising to "wait" before buying shares in Sherwin, but my fear is that those who wait will find themselves wishing they had not as Sherwin becomes an enticing buyout prospect daily for a large buyer like a Dow Chemical (DOW) who could easily swallow the company. With only a $6.6 billion market cap, Sherwin is very easily digestible.

Every few months Sherwin does a deal that further shrinks its exposure to the US housing market. Monday's news is just another example.

Disclosure: Long SHW, DOW.

Comments

[deanfv]

dude, what are you smoking? What don't you understand about housing / real estate CRATERING?

Wake the Eff Up!

[deanfv]

Oh yeah... there will not be a buy out!

[todd su]

dean,

not sure what you mean....

housing cratered, SHW grew earnings 12%, related?

[fxtrader07]

hey dean, truly comprehensive analysis on your part.
at least it made for an easy, quick read. LOL