Shares of paint giant Sherwin-Williams Co (NYSE:SHW) popped 13% according to data provided by S&P Global Market Intelligence after the company reported much better than expected fourth quarter performance. And the company may be moving closer to getting the Valspar acquisition approved.
Revenue for the quarter jumped 7% to $2.78 billion, and earnings rose slightly to $203 million. But when you exclude items like costs associated with the Valspar acquisition earnings were $2.34 per share, easily topping guidance of $2.13 to $2.23 per share. And for 2017 management expects earnings to increase from $11.99 per share to $13.00 to $13.20 per share.
On the Valspar front, management said it was likely divestitures would be needed, although the specifics were unclear. Management said revenues associated with divested businesses would be less than $650 million.
The paint business continues to perform well, and if the Valspar deal is closed Sherwin-Williams will be able to lower costs and raise prices, expanding margins. And in a business with very few large competitors and a steady demand for customers, Sherwin-Williams looks well prepared for the future. Shares are expensive at 23 times forward earnings, but given the competitive dynamics in paint I think it's worth paying a premium for the stock today.