RBC Capital cuts Sherwin-Williams target to $410, keeps Outperform

On Wednesday, RBC Capital Markets adjusted its outlook on Sherwin-Williams shares (NYSE:SHW), reducing the price target to $410 from the previous $415. Despite this change, the firm maintained its Outperform rating on the stock. RBC Capital’s analysts believe Sherwin-Williams stands to continue benefiting from market share gains, reduced tariff impacts, and margin expansion initiatives. The company, currently valued at $84.09 billion, maintains a robust gross profit margin of 48.47%. According to InvestingPro analysis, the stock appears overvalued at current levels, trading at a P/E ratio of 31.27x.

In a recent statement, RBC Capital highlighted that Sherwin-Williams is expected to report first-quarter earnings that align with forecasts and to maintain its guidance for the fiscal year 2025. With the next earnings report scheduled for April 29, investors following InvestingPro insights can access 13+ additional exclusive ProTips and comprehensive financial metrics to better prepare for the announcement. The market conditions have been described as uneven, as evidenced by the performance of RPM International (NYSE:RPM) Inc., which missed its earnings and reduced its guidance due to weaker consumer/DIY segments and inconsistent performance across its product categories.

RBC Capital expressed a particular preference for Sherwin-Williams over its competitors, citing the company’s potential for high revenue visibility, negligible tariff impacts, and a strategic approach to capital allocation. The company is poised to capture market share from PPG (WA:IBSP)’s North American Architectural Coatings sale, estimated to translate into long-term sales of approximately $200-300 million, and from the bankruptcy of Kelly-Moore Paints, which could yield $100-200 million. Additionally, Sherwin-Williams is expected to make gains in Latin America from Suvinil.

The company has also increased prices in its Performance Supplies Group (PSG) by 5% in January, with an anticipated realization rate of 50-60%. With roughly 80% of its sales in the United States and a strategy of local production for local markets, Sherwin-Williams is less susceptible to tariff-related disruptions. Moreover, the company could benefit from potential interest rate cuts if economic conditions deteriorate.

RBC Capital also approves of Sherwin-Williams’ capital allocation strategy, which includes a targeted long-term leverage ratio of 2.0-2.5 times, capital expenditures of approximately $900 million for fiscal year 2025, a 30% dividend payout, bolt-on mergers and acquisitions, and share repurchases. The company’s commitment to shareholder returns is evident in its 32-year streak of dividend increases and aggressive share buyback program. InvestingPro data reveals the company maintains a GOOD financial health score, with particularly strong profitability metrics. For detailed insights into SHW’s financial health and future prospects, investors can access the comprehensive Pro Research Report, part of the analysis available for 1,400+ top US stocks.

In light of the uncertain macroeconomic environment, RBC Capital has revised its earnings per share estimates for Sherwin-Williams, lowering the first quarter and fiscal years 2025 and 2026 EPS to $2.00, $11.70, and $13.50, down from $2.10, $11.85, and $13.80, respectively. The new price target of $410 is based on an unchanged 35 times fiscal year 2025 estimated EPS.

In other recent news, The Sherwin-Williams Company has extended the maturity of a portion of its credit facility to 2030, following an agreement with Goldman Sachs Bank USA and other lenders. This strategic financial move ensures the company maintains its borrowing and letter of credit commitments for an additional five years, reflecting its commitment to long-term financial stability. In a separate development, Sherwin-Williams announced its acquisition of BASF’s Brazilian architectural paints business for $1.15 billion, expected to close in the second half of 2025. This acquisition is anticipated to enhance Sherwin-Williams’ market presence in Latin America, with the Suvinil brand being a significant addition to its portfolio.

Moody’s confirmed that Sherwin-Williams’ credit ratings remain unchanged following the acquisition, indicating no lasting impact on the company’s credit profile. The company plans to finance the acquisition through existing cash, liquidity from current facilities, and new debt, while also slowing down share repurchases in 2025 to manage its financial commitments. Analyst firm Jefferies downgraded Sherwin-Williams’ stock from ’Buy’ to ’Hold’, citing potential challenges in the housing market and policy changes in the U.S. as factors affecting the company’s valuation. Meanwhile, Citi resumed coverage with a ’Buy’ rating and a price target of $423, expressing confidence in the company’s strategic direction despite operational challenges in Brazil.

KeyBanc maintained a Sector Weight rating for Sherwin-Williams, acknowledging the strategic rationale behind the BASF acquisition and its fair valuation. The firm highlighted the potential cost synergies and the expected positive impact on Sherwin-Williams’ financial metrics. These recent developments underscore Sherwin-Williams’ ongoing efforts to strengthen its financial and market position.

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