Will Sherwin-Williams Stock Split?

Sherwin-Williams (NYSE:SHW) is a well-recognized paint brand that has been doing business in America since 1866.

Aside from being a household name for both DIY and commercial painters, the company is a publicly traded standby worth over $88 billion. 

As the valuation has climbed so too has the share price and that has left some wondering whether the stock will split anytime soon, and whether it’s worth holding the shares for the long-term?

How Is Sherwin-Williams Performing?

Sherwin Williams share price rose following the release of Q2 earnings. In that quarter, consolidated net sales rose by 0.5% on a year-over-year basis.

Earnings per share, however, grew at a much more aggressive rate of 14% compared to the previous year.

Same-store sales among the company’s branded stores also saw a modestly positive increase of 2.4%.

Looking back over a longer period of time, Sherwin-Williams has an impressive history of reliable growth. Full-year revenues grew from $17.53 billion in 2018 to $23.05 billion in 2023, a gain of more than 31% in five years. During the same period, annual net income rose from $1.11 billion to $2.39 billion, more than doubling.

In addition to growing consistently, Sherwin-Williams has also been able to deliver solid profitability throughout a variety of market conditions.

In the last fiscal year, the company’s net margin was 10.9%, nearly as high as the margins it was realizing in 2021 when DIY home renovation projects were at a high due to a period of lockdowns.

Does Sherwin-Williams Have a Strong Moat?

In addition to its respectable performance, Sherwin-Williams also has a strong moat within its industry.

The company is by far the largest paint manufacturer in the United States, boasting a 17.1% market share. For reference, the next-closest competitor, DuPont, has a market share of only about 8.9%. With over 5,000 stores nationwide selling its branded paints, the company has a unique edge in distribution.

Sherwin-Williams also owns a variety of well-known brands that are sold through other retailers. These brands include Thompson’s Water Seal, Valspar and Minwax.

With this leading portfolio of brands under its corporate umbrella, Sherwin-Williams is more than a challenge for any competitor to unseat from its top place within its market.

Is SHW Stock Fairly Valued?

As with any investment, prospective buyers need to consider the price Sherwin-Williams is selling at as well as its underlying performance.

Sherwin-Williams trades at fairly high multiples that will require it to deliver a fairly high rate of continued growth.

Shares are currently priced at 30.5x forward earnings, 26.6x cash flow and 3.8x sales. For reference, the average forward P/E ratio of the S&P 500 at the moment is 21.5x.

Another ratio that investors may want to pay attention to in the case of Sherwin-Williams is the price-to-earnings-growth ratio, which is currently 2.8. Generally, a PEG ratio over 2.0 indicates overvaluation. Considering the stock’s other high ratios, it’s possible that SHW is moderately overvalued.

With that said, analysts still see at least some upside in Sherwin-Williams shares. The average price forecast for the stock is about $365, implying an upside of around 4.5% from the last close of $349.22.

It’s also worth noting that the stock may be able to sustain its high valuation. Though its P/E ratio is somewhat high, Sherwin-Williams has carried a ratio ranging from the high 20s to the mid-30s throughout most of the last five years.

Will Sherwin Williams Stock Split?

The Board of Directors at Sherwin-Williams has not announced or signaled any plan to split the stock in the near-term. The last stock split was a 3-for-1 split that took place on April 1, 2021.

While the company does have a history of splitting the stock, having done so six times since its IPO, these typically occur when the price reaches levels that the Board deems high enough to warrant making shares more accessible to retail investors. So far, that doesn’t seem to be the case.

Sherwin Williams Dividend Is Modest

Sherwin-Williams may also draw the interest of dividend growth investors. Though its current yield is only 0.8%, the company has been raising its payout for 47 consecutive years and maintains a payout ratio of just 30.5%.

This low ratio gives the company plenty of room for future increases, and management seems to have been taking advantage of that opportunity in recent years.

On a trailing 10-year basis, the payout has increased at a compounded rate of over 14% annually.

Is Sherwin-Williams a Buy?

In terms of both its competitive advantage and performance, Sherwin-Williams has the hallmarks of being a strong business with a wide moat.

The biggest issue for SHW at this point appears to be its price relative to its value, which may be sufficiently elevated to limit further upside.

Another potential issue for Sherwin-Williams is its 2.1 debt-to-equity ratio. The company has reduced its debt over the last year, but the amount is still high enough for investors to scrutinize before deciding to buy.

One factor that may tip the scales in favor of Sherwin-Williams being a moderate buy, however, is its ongoing share repurchase program. In H1 of this year, the company bought back about 3.1 million shares of its own stock. Though significant, this buyback pales in comparison to the remaining repurchase authorization of 36.5 million shares.

With about 252 million shares currently outstanding, the remaining buyback authorization would account for about 14.5% of the outstanding total.

This continues a long trend of buybacks that have progressively concentrated ownership in Sherwin-Williams over many years.

At the end of 2009, there were about 343 million shares of SHW outstanding. Today’s number is less than 75% of that, showing a gradual but substantial pattern of share repurchases.

Sherwin-Williams may also benefit from an eventual normalization of the home improvement market. Because so many projects were completed during the 2020-21 era, home improvement spending at large has fallen in the subsequent years.

For 2024, spending in this area is expected to be $30 billion lower than last year. This, in turn, has made it difficult for home improvement companies to build their revenues.

In the long run, however, the company’s prime position in its market will likely allow it to keep growing once consumption returns to a more normal pattern.

Between ongoing growth, continued buyback activity and the potential for long-term dividend growth, SHW may be a moderate buy for conservative investors.

Though the stock may not produce exceptional gains, the business itself is likely well-positioned for years or decades of further success. Investors looking for conservative buy-and-hold opportunities, therefore, may be able to take advantage of steady returns from SHW over long periods of time.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.