A Second Look at Sherwin-Williams (NYSE: SHW) It's Still a Buy

It was a little over a month ago when we last had a look at Sherwin-Williams (NYSE: SHW), and our research figured it was a buy back then when it closed at $582.47. Fast-forward to the present day, a little over a month later, and the company has lodged itself firmly in new highs for the year. Is it still worth buying in even as the company is sitting at share price levels it hadn't even seen before the pandemic? The answer still seems to be yes.

The Numbers Turned Out Nicely

With the company announcing its second-quarter financial results, we can see that not everything went the company's way, but enough did to make it worth a second look. That's especially true when you consider what the company went through in that second quarter, much the same as we all did.

Sales were down, which was admittedly bad news for the company, as it lost 5.6% of its sales this quarter. Given that that loss brought the company down to a meager $4.6 billion in sales, however, the bad part of that news was likely quickly overshadowed by the fact that it had billions of dollars in sales.

That's pretty much where the bad news for the company ends, too; diluted net income was up in a big way over the same period in 2019, up to $6.48 per share against $5.03 per share back then. Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) came in up too, representing 21.3 percent of sales to $979 million, which is up 6.2 percent against the second quarter of 2019. Net operating cash was up as well, hitting $1.07 billion, 12.3% of sales, which is up 42% over 2019's figure.

Gains on Some Fronts, Losses on Others, and a Future That Looks Like The Past

There was some weakness to Sherwin-Williams' figurings, but the weakness was comparatively limited and the conditions even managed to help a bit. The company figured that COVID-19's impact on the second quarter was 8.2% and for the first six months was 5.2%, noting that there was a slump in demand for both the Performance Coatings Group and the Americas Group.  The Performance Coatings Group lost 16.5% of its sales for the quarter, dropping to $1.1 billion, and the Americas Group dropped 8.4%, falling to $2.52 billion.

Yet at the same time, it noted that the Consumer Brands Group actually delivered higher sales for a while, and it's that point that's likely to give Sherwin-Williams an edge going forward. The Consumer Brands Group saw a 21% sales gain, and delivered a better profit than it did at the same time the preceding year.

That was when the company's chairman and CEO, John G. Morikis, came out with some projections on the rest of the year. Morikis noted that the rest of the year would be “approximately flat” when compared to the previous year. The company had adjusted its sales guidance to reflect a market packed with uncertainty, yet could project improvements in diluted net income per share. Where the company had previously rolled out guidance of $16.46 to $18.46 per share, it could now increase that to between $19.21 and $20.71 per share.

Most of the Helpful Factors are Still in Play

The numbers are incredible for a company that had to mostly shut down its operations, like many were required to, during the coronavirus lockdowns. There were, in fact, some places in which it was briefly illegal to buy Sherwin-Williams products, like most of Michigan.

However, even those wild overreactions didn't last long, and those who wanted paint were able to get back to it, even if it was through curbside delivery approaches. Indeed, people did want paint; the boost in the consumer division shows that much, and it has a connection in logic.

Basically, people stuck in their homes with nothing to do except watch a lot of streaming video or try to keep the kids on track for their online learning wanted a project, and “repainting the house” definitely qualified. Home renovation and decoration sales in general have enjoyed a nice bump upward from customers looking to renovate their homes, using money formerly earmarked for now largely-impossible vacations to do so. Of course, this bump can only last so long, as eventually every house that was getting repainted does, but that's still likely to help.

Plus, with businesses beginning to reopen again, the demand from corporate customers is also on an upward cant. Sherwin-Williams recently rolled out a new kind of flooring targeting the microbrewery market, the FasTop Multi-Systems line, which offers slip resistance and improved durability. Take all these factors together and the future looks fairly bright for Sherwin-Williams and its investors as customers return or expand their orders.