Has Sherwin-Williams Company Lost Its Luster?

Analysts Spark Sell-Off In Sherwin-Williams Company 

The downgrades in Sherwin-Williams NYSE: SHW began long before the company released its updated guidance but they appear to be gaining momentum in its wake. According to BMO Capital who downgraded the stock to Hold in December, the supply chain issues investors were expecting to appear did not fully materialize in 2021 and led to outperformance in the stock. At the then-current levels near $345, the good news was all but priced into the stock. That sentiment was fully realized a few weeks later when the company lowered its guidance and, in particular, the outlook for earnings. In fact, based on the guidance, it looks like BMO Capital wasn’t cautious enough. 

Sherwin-Williams Lowers EPS Guidance

Sherwin-Williams released preliminary results for Q4 only a few weeks after BMO’s downgrade. The company says revenue should come in line with the current Marketbeat.com consensus but EPS will fall short. The company is looking for adjusted earnings in the range of $1.35 versus the consensus of $1.68. The reason is due to supply chain issues more so than inflation but either is a concern. At least, in this case, a shortfall in the America’s Group will likely be made up as materials are made available but there is a risk the business went elsewhere. 

"While we met our consolidated fourth quarter net sales guidance and demand remains robust, we are disappointed in our weaker than expected earnings results in the quarter. Our lower than expected earnings relative to our prior guidance is related to a shortfall in The Americas Group, where sales were below our guidance due to slower than expected improvement in raw material availability and COVID-related labor headwinds in December." said Chairman, President and CEO John G. Morikis.

The Analysts Don’t Like The Color Of Sherwin-Williams Outlook

There has been a flurry of analysts activity since the BMO downgrade including several notes that came out in the wake of the guidance update. The latest three analysts’ notes include three price target downgrades and one rating change from Overweight to Equal-Weight. The bad news is that sentiment appears to be souring, the good news is that the trend in sentiment is still bullish and there is a chance the company will outperform its own expectations. The consensus of the three latest target changes has the stock trading around $340 to $345 compared to the Marketbeat.com consensus of $365 which projects about 22% of upside for the stock. The key takeaway is that the consensus target is still up 1% for the last 30 days, 5.7% over the last 90 days, and 55% over the last year, and the underlying business is still strong. 

The Technical Outlook: Sherwin-Williams Hits A Bottom 

Shares of Sherwin-Williams slipped in the wake of the guidance and downgrades but it looks like a bottom is at hand. Price action and the indicators suggest an extreme in sentiment has been reached and support is evident at the $300 level. This may not be “the bottom” in Sherwin-Willams but it is a bottom that could see price action advance 10% as it moves back up to the short-term moving average near $330. Sherwin-Williams is expected to report on January 28th, 2022.