Theough The Fly's Eyes: Sherwin-Williams

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.

Sherwin-Williams: Ask How, Ask Now

Sherwin-Williams Company (SHW) makes coatings and related materials for professional, industrial, commercial and retail customers. Products include a variety of paints, finishes, coatings, applicators and varnishes sold under the names Dutch Boy, Krylon, Martin-Senour, Red Devil, Sherwin-Williams, Thompson's and Minwax. The firm operates more than 3,000 North American retail stores and about 200 international wholesale outlets. Products are also sold to retailers, dealers, jobbers, licensees, and various third party distributors.

The company pleased investors last week, when it reported Q2 EPS of $1.52 and revenues of $2.2 billion. Analysts had been expecting $1.44 and $2.21 billion. Management also guided Q3 EPS to $1.45-$1.55 ($1.48 consensus), Q3 revenues to $2.2-$2.24 billion ($2.21B consensus) and FY07 EPS to $4.60-$4.70 ($4.60 consensus). The company acquired 1.3 million shares of its common stock through open market purchases during Q2 and had remaining authorization to repurchase 8.171 million more.

The stock popped into a bullish "flag" pattern on the news. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside. Brokers recommend the issue with one "strong buy", one "buy" and five "holds". Analysts see a 15% average annual growth rate, through the next five years. The SHW P/E ratio (16.35), PEG ratio (1.10), Price to Sales ratio (1.19), Price to Free Cash Flow ratio (18.56), Return on Assets (11.86%), Return on Investment (20.32%) and Return on Equity (32.83%) compare favorably with industry, sector and S&P 500 averages.

The stock is one of those used to calculate the S&P 500 Index. Institutional investors hold about 75% of the outstanding shares. Over the past 52 weeks, SHW has traded between $50.50 and $73.96. A stop-loss of $62.30 looks good here.