SHW - Sherwin-Williams: The Market Price Has Run Ahead Of Its Acquisitions

2024-04-19 05:19:23 ET

Summary

• Sherwin-Williams' revenue growth has been driven by acquisitions rather than organic growth, and it needs to continue acquiring companies to maintain its growth rate.
• SHW has a good track record of growing revenue, profits, returns, and capital efficiencies. While its current DE is high, there are mitigating factors.
• The market has priced the company on the basis that there will be another major acquisition in 6 years’ time.

Investment Thesis

The Sherwin-Williams Company's ( SHW ) revenue growth over the past 7 years was due more to acquisitions than organic growth. The paints and coatings sectors are not high-growth ones and to maintain its historical revenue growth rate of 7% CAGR, the company needs to continue to acquire companies.

This will require funding and given its current 3.2 Debt Equity ratio, the acquisitions must be well-timed. The company is a cash cow and if planned properly, it can continue to grow with acquisitions. Furthermore, the company has a good track record of growing revenue, profits, returns, and capital efficiencies....

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