What happened
Shares of Sherwin-Williams (SHW 0.54%) were climbing the ladder last month as the company benefited from some bullish analyst commentary as well as positive news about the housing market.
According to data from S&P Global Market Intelligence, the stock finished June up 17%. As the chart below shows, much of those gains came in the last week of the month as positive housing data came out.
So what
Sherwin-Williams is the world's largest paint and coatings company and its performance is highly cyclical, correlated with industrial demand and the housing market.
The stock jumped on June 2 as a strong May unemployment report helped persuade investors that the economy was still strong in the face of rising interest rates. That's good news for cyclical stocks like Sherwin-Williams, which had mostly seen demand cool off during the housing slump.
On June 12, the company got the first of several bullish notes as BMO Capital raised its price target from $253 to $269. It sees upside to the company's 2023 forecast as raw materials pricing eases. The following day, Citigroup initiated coverage on the stock with a buy rating and a price target of $283 as a part of new coverage of the North American chemicals industry. The Federal Reserve's decision the next day to pause interest rate hikes also seemed to be a win for Sherwin-Williams.
Later, the stock jumped 7.5% in the last week of the month as the company benefited from data showing the housing market rebounding. New home sales surged 20% in May from a year ago and 12% from April, a sign of pent-up demand due to a lack of sufficient inventory on the market. Additionally, the Case-Shiller index showed that home prices rose on a monthly basis in April for a third month in a row, likely showing that the nadir has passed in the housing market.
Additionally, BMO upgraded the stock to outperform partly in response to the better-than-expected housing data, and called the risk/reward "relatively compelling."
On the last day of the month, Loop Capital raised its price target from $285 to $290 and said that several tailwinds were emerging for the stock including a recovery in residential construction.
Now what
Sherwin-Williams has been a longtime outperformer and the stock has historically traded at a market premium. It's currently valued at a price-to-earnings ratio of 32, but if we're at the beginning of a new bull market and a recovery in the housing market, that seems like a fair price to pay for this industry leader and proven outperformer.
