4 Reasons Your Eyes Should be Glued to This Stock Next Week

Neha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Paint retailers never had it so good. After the crazy run up last year, stocks in the industry are just not willing to give up. Recent numbers have been good, and stocks continue to inch higher. Sherwin-Williams (NYSE: SHW), PPG Industries (NYSE: PPG), Valspar (NYSE: VAL): you name it and it might have just hit a fresh 52-week high!

Of these, Sherwin won the 2012 game, and is ready to keep it rolling as it rings the earnings bell Jan. 31. Will it hit a higher spot next week? Quite possible, for 4 reasons.

Sherwin knows how to tickle

Sherwin’s stock should hold steady if the company manages to cough up earnings of $1.16 per share, which would be a significant upside from last year’s EPS of $0.84. That’s what analysts are expecting. Sherwin actually bumped up its full-year earnings guidance to a range $6.35 to $6.55 per share last quarter. That would be a solid 31% gain even at the lower end.

Better still, Sherwin’s stock could stretch out a bit more if it manages to do even better. What are the chances? Pretty high. The company stumped the Street in each of the last four quarters by good margins. This one could be no different. At least that’s what peers are suggesting.

Sherwin knows how to lead

PPG Industries’ fourth-quarter numbers were spot-on, with the company delivering its tenth straight quarter of record earnings per share (on an adjusted basis). Sales for its U.S. architectural coatings grew in the “high single-digits.” What has that got to do with Sherwin? Well, most of Sherwin’s revenue from the U.S. comes from architectural coatings.

RPM International (NYSE: RPM) had an equally good last quarter with net sales clocking 11% gains. That’s not all. Its consumer segment reported a whopping 19% jump in sales, with 6% attributed to organic growth. Three out of Sherwin’s four divisions rely on consumer sales. So you know what to expect.

Sherwin has the wind at its back

Sale of new homes ticked up further in November, improving 4.4% sequentially and 15.3% from last year (December data is slated for Jan. 25 release).  Existing home sales, though slipping marginally in December, capped 2012 with its best gains in 5 years. That’s terrific news for Sherwin, simply because the fate of its largest division, Paint Stores, hangs largely on housing activity.

Home improvement stores are enjoying the euphoria as well. Both Lowe’s and Home Depot (NYSE: HD) are currently flirting with their respective 52-week highs. Retails sales improved in November as well as in December. With December also marking a key holiday season, sales growth for these companies should be good enough for their last quarters, which in turn bodes well for Sherwin.

Sherwin is playing its cards well

PPG stunned everyone last month when it struck a deal to buy out Akzo Nobel’s architectural coatings business for a whopping $1 billion. No, the amount wasn’t a surprise, the target was. The deal would see PPG emerge as the largest coatings business in the world, though the North American market would still be under Sherwin’s rule. It will be a huge headway for PPG as it adds another 600 stores to its bag, mostly in North America. But for Sherwin, it signals tougher competition.

Mind you, PPG’s not the only one eyeing a bigger share of the pie. Small fry Valspar (NYSE: VAL) took over a couple of Ace Hardware’s facilities, and will start stocking its paints at 4,000 Ace retail stores across the U.S. That apart, Valspar is trying to woo customers through Facebook, launching a new color every day and giving away free samples to its fans. So is Sherwin sitting on its hands while rivals nudge ahead? Not quite.

Expect a good time on the earnings call to be spent on what will be one of the biggest deals in the industry. Sherwin will soon rule Mexico after taking over the nation’s biggest paint maker, Comex. Mexico is a huge growth story. As proof, Home Depot’s Mexican business has reported an incredible 36 straight quarters of positive same-store sales. The market is also high on the company’s expansion list – Home Depot opened two new stores there during its third quarter. Also, fourth quarter is seasonally good for the Latin American market, and Sherwin gets about 10% sales from there.

Sherwin is on my watchlist

In short, don’t be surprised if it’s another blow-out quarter from Sherwin. All said, I personally wouldn’t bet on Sherwin even if I am 100% sure it will beat the Street next week. That’s because the stock isn’t cheap, and day-to-day meanderings are not my cup of tea. Yet, Sherwin’s numbers say a lot about the health of the paint industry, which is why I’ll watch this one closely. You too can. Simply click here to add Sherwin-Williams to your stock watchlist to stay updated on all its news and analysis.

Neha Chamaria has no position in any stocks mentioned. The Motley Fool recommends Home Depot and Sherwin-Williams. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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