Bruce Bennett/Getty Images News
Sherwin-Williams (NYSE:SHW) +2.2% in Thursday's trading as UBS upgrades shares to Buy from Neutral with a $402 price target, raised from $312, saying the company is "in prime position" to capture the growth from inflections in U.S. residential data, historically growing 1.5x-2x above the industry norm.
In this cycle, with a higher level of investment and some market retreats from peers, Sherwin-Williams (SHW) can disproportionally win, which could lead to ~15% compound annual growth rate in earnings per share over the next few years, and support the company's premium multiple over the period, UBS analyst Joshua Spector says.
Sherwin-Williams (SHW) margins benefit from density/scale, with company stores reaching more than 93% of the U.S. population in a 30-minute drive, Spector says.
The analyst also downgraded rival PPG (PPG) to Neutral from Buy with a $156 PT, lowered from $173, saying it is less constructive on medium-term growth potential amid the company's strategic review of North American architectural coatings.
While PPG (PPG) management's logic for the review makes sense - lower margin/growth - it highlights challenges for the business, according to Spector.