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Investing.com -- Bank of America upgraded Sherwin-Williams Co to Neutral from Underperform, saying earlier concerns about slowing housing markets and overly optimistic estimates have already played out.
The brokerage said same-store sales growth has decelerated to 0.8%, while second-quarter results and guidance missed expectations, largely validating its previous downgrade.
With limited new downside risks ahead, BofA said it no longer expects the shares to materially underperform.
The price objective was raised to $375 from $296, based on a 33 times 2025 earnings multiple, up from 28 times previously.
That reflects what the bank described as “trough-like” market conditions, as well as higher medium-term growth assumptions and a lower cost of equity.
BofA said Sherwin-Williams remains a “best-in-class” business that has managed to post solid results despite one of the weakest U.S. housing markets in years.
It expects the company to emerge from the downturn in a strong position and continue to outpace its end markets.
Potentially lower U.S. interest rates could provide a further boost, the bank said, noting that a change at the Federal Reserve could bring a more dovish policy stance.
However, it questioned whether cuts to the Fed funds rate would have the intended impact on longer-term Treasury yields and mortgage rates.
Valuation remains a sticking point, with the shares trading at a premium to coatings peers such as RPM International, which BofA said currently have stronger growth profiles.
Still, it acknowledged the market’s willingness to pay up for Sherwin-Williams’ business model as part of its decision to move to a neutral stance.