Sherwin-Williams: Painting Profits

04/07/2016 7:00 am EST


Jimmy Mengel

Editor, Outsider Club

Our latest featured recommendation is the leader in the United States’ paint industry; it’s been churning out paint for over 150 years, asserts Jimmy Mengel, editor of The Crow’s Nest.

Now, there are only a few paint companies in North America, and Sherwin-Williams (SHW) – with a market cap of $22.3 billion -- is one of the largest.

One thing I look for in large companies like this is how easy it is for a competitor to come in and crash the party.

With an industry like paint, there are rather high barriers to entry. Not too many companies can just build a paint factory themselves and start churning out a superior product.

And, the company just got bigger. Sherwin-Williams has agreed to merge with Valspar (VAL) for $11.3 billion.

Valspar had a market cap of $5.3 billion and a long history of dividend increases. In fact, it has increased its dividend payments every year since 1992. The deal is for $9.3 billion in cash and $2 billion in debt.

The companies expect the deal to achieve $280 million in annual savings in the areas of sourcing, process, and efficiency within two years.

The acquisition of Valspar gives the company the ability to expand its reach in the Asia-Pacific region, Europe, the Middle East, and Africa.

The acquisition will also give Sherwin Williams the top spot in the global coatings industry.

Although the stock offers a modest 1.05% dividend, it is a dividend aristocrat, having increased its dividend every year since 1979.

Sherwin-Williams is a total buy for me right now, especially when looking at the long term.  I’d be happy buying under $295 and dollar-cost averaging if we see any dips in the stock.

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By Jimmy Mengel, Editor of The Crow’s Nest.

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