Sherwin-William’s Win Over PPG Stock in The Construction Boom

→ Urgent Nvidia Warning (From Altimetry) (Ad)

Sherwin-Williams Stock price outlook

Key Points

  • Sherwin-Williams stock could be set to rally over the sector on a U.S. construction boom that Buffett predicted. 
  • Wall Street analysts are getting ready by boosting the stock's price target, and markets value it over its peers. 
  • The stock is earning its place over its biggest competitor, PPG Industries, as its market share shows. 
  • 5 stocks we like better than PPG Industries

The threat of geopolitical tension is always bad for the stock market; however, certain stocks tend to shrug off international conflicts. Inside the U.S., the real estate sector is looking at a potential new bull run in the coming quarters, and it all has a relatively simple cause.

After Warren Buffett started buying into homebuilding stocks, investors got curious. Far from being a discount, Buffett’s position in D.R. Horton Inc. NYSE: DHI is more of a cyclical bet than his typical long-term value investing strategy—or is it? According to the Intercontinental Exchange, most mortgages in the U.S. carry an average interest rate of 3.25% today.

These rates matter because, as mortgages hover around 7.5% these days, most homeowners are probably not looking to sell their cheap mortgage only to refinance a new home at a much more expensive rate. At the same time, would-be homebuyers aren’t looking to buy at these high rates. To get out of this situation, builders need to step up and inject new inventory.

After these homebuilders do their part and Buffett gets paid, stocks like Sherwin-Williams Co. NYSE: SHW will need to come in and furnish newly built homes, as the company is one of the leading chemicals (paint) names in real estate.

Markets Are Getting Ready

After declining by 12% in the past two weeks, Sherwin-Williams stock fell to 88% of its 52-week high, attracting some attention as a potential buy target. Now, why would analysts at Citigroup Inc. NYSE: C and the UBS Group NYSE: UBS boost the stock’s price target ahead of its coming quarterly earnings announcement?

That’s right, price targets advanced to $390 from Citi and $402 from UBS. Respectively, these banks suggest that the stock could rally by 28% and 32% in the coming months. However, investors should take analyst ratings with a grain of salt, so here’s what markets think about Sherwin-Williams.

Compared to the construction sector, Sherwin-Williams stock is valued at a 33x P/E multiple, a 98% premium to the sector’s 16.6x average valuation today. There must be a good reason for analysts to expect so much upside in the stock and for markets to be willing to overpay for it as well.

It won’t be the stock’s 1% dividend yield; investors could start asking other questions instead, focusing more on the stock’s fundamentals and potential national real estate demand.

The Sherwin-Williams Brand: As Good as Ever

Sherwin-Williams Today

The Sherwin-Williams Company stock logo
SHWSHW 90-day performance
-1.62 (-0.52%)
(As of 05/17/2024 08:54 PM ET)
52-Week Range
Dividend Yield
P/E Ratio
Price Target

As of 2019, Sherwin-Williams owned 28.5% of the North American paints and coatings market. In second place, PPG Industries Inc. NYSE: PPG took nearly 21% of the market. While this is a tight competitive positioning, markets still preferred Sherwin-Williams over PPG.

Valued at 22.1x, PPG stock trades at a 33% discount to Sherwin-Williams. The saying “It must be cheap for a reason” applies here, as the same Citigroup and UBS analysts that boosted Sherwin-Williams came to downgrade PPG stock. From $156 down to $150, UBS sees a 15% upside in the stock.

For Citi, the downgrade took the stock’s previous valuation of $170 down to $161, a 5.3% decline in their perceptions of the stock. Analysts aren’t the only ones carrying this opinion for the two competitors.

Institutional investment inflow over the past year was $9.6 billion for Sherwin-Williams, while for PPG, it was only $5 billion. How bears regarded these two stocks over the past month can also give investors another angle for gauging current sentiment.

PPG stock’s short interest rose by 5.6% during the period. Remembering that fighting the market – and analysts – could prove futile, bears retreated from Sherwin-Williams stock, as its short interest declined by 9.9% in the past month.

As Sherwin-Williams earnings are coming up on April 23rd, analysts looking to boost their reputation gave the stock a higher valuation. At the same time, short sellers wanted to avoid losses and retreated from the stock.

PPG Industries Today

PPG Industries, Inc. stock logo
PPGPPG 90-day performance
PPG Industries
-0.34 (-0.25%)
(As of 05/17/2024 08:54 PM ET)
52-Week Range
Dividend Yield
P/E Ratio
Price Target

The final check may be based on the two stocks' price-to-book (P/B) ratios. Investors are willing to pay 21x for Sherwin-Williams' book, the first financial metric to expand on rising net income. The company's financials show a net income margin of 10.4%, over PPG's 7%.

A gap in profitability, combined with Sherwin-Williams’ superior returns on invested capital (ROIC) rates of 14.5%, superior to PPG’s 9.3%, could have driven investors to discount PPG’s book to only 3.8x.

→ 41 banks launch ‘crypto dollar’ (From Stansberry Research) (Ad)

Should you invest $1,000 in PPG Industries right now?

Before you consider PPG Industries, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and PPG Industries wasn't on the list.

While PPG Industries currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

A Guide To High-Short-Interest Stocks Cover

MarketBeat's analysts have just released their top five short plays for May 2024. Learn which stocks have the most short interest and how to trade them. Click the link below to see which companies made the list.

Get This Free Report

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
DHI Group (DHX)
3.7432 of 5 stars
Sherwin-Williams (SHW)
4.13 of 5 stars
$312.40-0.5%0.92%33.30Moderate Buy$340.56
Citigroup (C)
4.6772 of 5 stars
$64.07-0.1%3.31%18.96Moderate Buy$62.85
UBS Group (UBS)
2.4233 of 5 stars
$30.34+1.1%0.76%3.31Moderate BuyN/A
PPG Industries (PPG)
4.9204 of 5 stars
Compare These Stocks  Add These Stocks to My Watchlist 

Gabriel Osorio-Mazilli

About Gabriel Osorio-Mazilli


Contributing Author

Value Stocks, Asian Markets, Macro Economics


Gabriel Osorio-Mazilli has been a contributing writer for MarketBeat since 2023.

Areas of Expertise

Value investing, long/short trading, options, emerging markets


CFA Level I candidate; Goldman Sachs corporate training; independent courses

Past Experience

Analyst at Goldman Sachs, associate at Citigroup, senior financial analyst in real estate

Featured Articles and Offers

Search Headlines: