It Looks Like Someone Splashed Red Paint All Over Sherwin-Williams Co.’s Stock in September

An analyst downgrade, coupled with Petrobras-related weakness in Brazil weighed heavily on Sherwin-Williams Co. last month.

Matthew DiLallo
Matthew DiLallo
Oct 6, 2015 at 10:31AM

What: If there's one color Sherwin-Williams (NYSE:SHW) investors are probably sick of seeing it's red. That's after the company's stock price fell 10.4% last month and is now down 17% over the past six months. Driving the company's September swoon was the combination of an analyst downgrade as well as worries about the company's Brazilian operations.

So what: When an analyst speaks, the market typically listens. So, when an analyst at Longbow downgraded Sherwin-Williams stock to neutral from buy, investors downgraded it out of their portfolios. That's because the reason behind the downgrade caused investors to think twice about its future as Longbow said it believes there is a risk that the company's third-quarter results could come in below forecast. This is because of its view that the North American paint market appears to be growing at a slower than expected rate.

Making matters worse is the slowdown in Brazil, which is the company's second-largest market by volume after the U.S. The country's problems were highlighted in a Wall Street Journal article last month, which also detailed some of the issues this is causing for Sherwin-Williams. One of the issues relates to the corruption scandal at Brazilian oil giant Petrobras (NYSE:PBR), which is an important customer for Sherwin-Williams as Petrobras uses Sherwin-Williams coatings on some of its products. That's actually hurting the company's Asian operations because these products are then exported overseas.

Now what: There's a lot of negativity weighing on Sherwin-Williams right now. That could continue until the company has news to either confirm or rebut these worries. For that, investors will have to wait until Oct. 29 when the company releases its third-quarter results, which will paint a more complete picture of whether the U.S. paint market and the Petrobras issues in Brazil are really having an impact on the company.