Sherwin-Williams (NYSE:SHW) continues to impress, recently reporting a record first-quarter profit of $1.11, 17% higher than last year. This is just a follow-up to a record year in 2012.
Sales for the quarter were slightly less impressive, only increasing by 1.4%, but still rising to a new record level. The company expects sales to be better next quarter, with a 5% to 9% increase over the same quarter last year. For the full year, management expects earnings to be as much as 25% higher than last year, an impressive feat given the difficulty of beating last year's results.
Sherwin-Williams, along with some other home-improvement stocks, benefits from being part of that rare breed of stocks that do well when times are good, and still do well when times are bad. If the housing market is good, new homes get built en masse, and those homes need to be painted and floored. Hence, with U.S. housing starts up nearly 90% over the past couple of years, homebuilders KB Homes (NYSE:KBH) and Beazer Homes (NYSE:BZH) have seen revenues finally starting to recover, and companies such as Sherwin-Williams and Lumber Liquidators (NYSE:LL) are being pulled along for the ride.
If the market is bad, however, homeowners who'd planned on moving instead settle for refurnishing, and those who'd planned on selling resort to repainting and putting in new wood flooring to entice buyers. Despite the nascent recovery, KB Homes and Beazer have both had sales fall 80% since U.S. housing starts peaked in 2006, but sales at Sherwin-Williams are up 22.5%, and Lumber Liquidators has grown sales an amazing 158%, proving that homeowners didn't just give up and let the neighborhood go.
Sherwin-Williams is also expected to soon complete its acquisition of Comex, the largest paint company in Mexico. This purchase will give Sherwin-Williams a near-complete stranglehold on the paint market in much of the Western Hemisphere, allowing it to profit from the U.S. housing recovery at the same time that it profits from emerging markets in Latin America.
While it's worth noting that Sherwin-Williams' stock has doubled since the start of 2012, earnings have grown even faster. At a current price-to-earnings-growth ratio of 0.77, the stock appears slightly undervalued. As the housing recovery continues to mount, Sherwin-Williams will almost certainly continue to grow as well.