Sherwin-Williams Should Keep Winning From Housing's Bounce

On Thursday, Sherwin-Williams (NYSE: SHW  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

The housing industry plays a big role in how much paint and related supplies that Sherwin-Williams is able to sell, and with home prices finally having apparently bottomed and starting to climb modestly, times should be looking up for the company. Let's take an early look at what's been happening with Sherwin-Williams over the past quarter and what we're likely to see in its quarterly report.

Stats on Sherwin-Williams

Analyst EPS Estimate

$1.10

Change From Year-Ago EPS

15.8%

Revenue Estimate

$2.23 billion

Change From Year-Ago Revenue

4.3%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Will Sherwin-Williams paint the town red this quarter?
Analysts have gotten a bit more excited about Sherwin-Williams's earnings prospects recently, raising their first-quarter estimates by a penny per share and boosting their full-year 2013 consensus by $0.04 per share. The stock has also done well, rising 8% since early January and hitting a new all-time high earlier this week.

Even though earnings haven't come out yet, Wall Street pros haven't been afraid to jump the gun and boost their views on Sherwin-Williams. Yesterday, Nomura Equity Research upgraded the stock to buy and pushed its price target up by $30 per share to $200. With the analyst citing strong sales of paint and wallpaper in its retail segment, rising 8% in January and February, Sherwin-Williams appears well poised to take advantage of improving trends in the industry.

Moreover, investors already got good news back in February, when Sherwin-Williams boosted its dividend by 28%. The move lengthened the company's streak of annual dividend increases to 34 years and reaffirmed its belief that an improving financial picture will allow it to be more generous to shareholders.

But the industry has gone through some major merger and acquisition activity recently. Sherwin-Williams announced last November that it will acquire Mexico's Consorcio Comex for $2.34 billion, giving the company greater geographical and product diversity. That'll be an important source of growth for Sherwin-Williams, as rival PPG Industries (NYSE: PPG  ) recently closed on its $1.05 billion acquisition of Akzo Nobel and its architectural coatings business. Moreover, with DuPont (NYSE: DD  ) having sold off its performance-coatings business, which focuses largely on automotive paint, to private equity firm Carlyle Group, Sherwin-Williams needed to boost its size in order to keep up with its competition.

In its earnings report, watch for Sherwin-Williams to give investors on how its retail stores did compared to its more commercially oriented business segments. If the housing recovery is for real, both businesses should contribute positive results that together could send Sherwin-Williams to even loftier heights.

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