Sherwin-Williams Could Offer Low Risk Buying Opportunity

The Sherwin-Williams Co. (SHW) has been on fire since March 2020’s pandemic low, tripling in price into May’s all-time high at 293.05. The stock split three-for-one in March 2021 and raised both Q2 and fiscal year guidance earlier this week, setting the stage for even higher prices in coming months. Bank of America Securities took note of the bullish metrics on Thursday, upgrading the chemical giant while predicting “multiple years of robust paint demand”.

Homebuilding Frenzy

The surge in U.S. home sales has fueled the advance, with the pandemic and remote work environment encouraging upwardly mobile millennials to leave crowded urban areas in the northeastern and west coast states in favor of smaller towns and southern states. This trend is expected to continue for several years at a minimum, underpinning robust sales of all the materials needed to build and improve living spaces.

BofA’s Steve Byrne ‘double-upgraded’ Sherwin-Williams from ‘Underperform’ to ‘Buy’, noting “Our prior cautious view was based on concerns that the unprecedented DIY paint demand in 2020 could cannibalize contractor demand in 2021. However, our third year of paint contractor surveys clearly indicated the opposite view, with backlogs well above 2019 levels. This view is supported by robust US homebuilding trends and home resale activities”.

Wall Street and Technical Outlook

Wall Street consensus has dropped to an ‘Overweight’ rating after outsized share gains, based upon 13 ‘Buy’, 2 ‘Overweight’, 10 ‘Hold’, 1 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $222 to a Street-high $327 while stock opened Thursday’s session more than $25 below the median $306 target. This modest placement supports additional upside that could finally break the psychological $300 barrier.

Sherwin-Williams topped out just below 200 in November 2019, tested that level in January 2021, and dropped more than 90 points to a three-year low in March. The subsequent uptick completed a cup and handle breakout in July, generating a momentum-fueled advance that stalled above 150 in November. Positive price action cleared the barrier in April, ahead of the May peak and orderly pullback that’s targeting the 50-day moving average at 273. A weekly sell cycle predicts that level will get tested before bulls resume control of the ticker tape.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.