Sherwin-Williams

Sherwin-Williams delivered strong second-quarter results despite little improvement in underlying paint demand. Net sales increased 7.5% to $6.79 billion, while diluted earnings per share rose 14.3% to $3.43.

Why it matters: Shares jumped 8% as Sherwin-Williams once again demonstrated the strength of its market position, outperforming the broader market despite continued global uncertainty and raw material cost inflation. Sales growth was driven by new account wins, increased spending among existing customers, and pricing gains. This robust top-line performance, combined with operating leverage, also supported adjusted EPS growth. Management expects little to no near-term improvement in demand, making continued share gains and consistent execution central to the company’s ability to outperform. We believe Sherwin is well positioned to do so, given its track record through periods of weak demand, extensive store network, and close relationships with professional painters.

The bottom line: We are increasing our fair value estimate for Sherwin-Williams to $340 per share from $330 after incorporating management’s higher 2026 guidance. Shares are currently trading about 4% above our fair value estimate and appear fairly valued. We continue to monitor raw material cost inflation and availability, though we expect the roughly 8% price increase to offset much of the related cost pressure and help protect margins. The main concern, in our view, is whether persistent cost inflation might force the company to raise prices beyond its normal annual increases, potentially weighing on volumes in an already sluggish demand environment.

We are maintaining our fair value estimate for Sherwin-Williams at $340 per share. Over our 10-year forecast horizon, we continue to expect solid growth and profitability, with consolidated revenue forecast to grow at a 5.3% compound annual rate and operating margins expanding by about 230 basis points. Our revised valuation equates to 29 times our 2026 adjusted earnings per share and a forward EV/EBITDA multiple of approximately 18.5 times.

We forecast the paint stores group to grow at a 5.4% compound annual rate over the next 10 years, with income before tax margins reaching 24.6% by 2035. While end markets remain uneven in the near term, we expect Sherwin to continue gaining share through disciplined pricing initiatives and continued investment in its store network and service capabilities.

Over the medium term, we expect the segment to benefit from improving residential repaint activity and a gradual recovery in housing construction. Residential repaint accounts for roughly one-third of segment revenue and typically follows a five to seven year repaint cycle. This cycle was pulled forward in 2021 amid elevated housing turnover and pandemic driven renovation activity. A portion of repaint demand is needs-based maintenance rather than discretionary remodeling, which provides a relatively stable source of demand even during softer housing environments. At the same time, activity tied to housing turnover and discretionary upgrades tends to be more cyclical, and we expect this portion of demand to provide an additional tailwind as existing home sales and consumer sentiment improve. A pickup in housing construction activity should provide an incremental tailwind. Higher mortgage rates have weighed on new construction in recent years, but we expect single-family housing starts to gradually return to growth beginning 2027, which should support paint demand tied to new residential builds.

We forecast the consumer brands segment to grow 6.7% compounded annual growth over the next decade, with margins reaching 17.2% by 2035. Do-it-yourself demand surged in 2020 as many people were stuck at home during pandemic lockdowns and were reluctant to have professional painters in their homes. Since then, demand has normalized and remains more closely tied to discretionary consumer spending, making the segment more sensitive to changes in consumer sentiment. However, Sherwin-Williams has maintained a leading position in the DIY paint market even during periods of weaker demand, which reinforces our confidence in the segment’s long-term growth.

We forecast the performance coatings segment to grow 4.1% compounded annual growth over the next decade, with margins reaching 15.2% by 2035. The combination of Sherwin’s legacy operations and the 2017 acquisition of Valspar established Sherwin as a significant player in global industrial coatings and we expect the segment's growth to largely track that of the industrial end markets it serves. Unlike some competitors, Sherwin has historically taken a disciplined approach to industrial coatings, focusing on end markets where it believes it can earn attractive returns rather than pursuing scale across all segments. Nevertheless, the industrial coatings market remains more competitive than the architectural paint market, and suppliers often compete on price during contract negotiations.

The second stage of our valuation model assumes Sherwin can generate an average return of 26% on new invested capital and 6.5% earnings-before-interest growth (implying a 25% reinvestment rate) for 10 years after our 10-year explicit forecast period.

We assign Sherwin-Williams a wide moat based on its intangible assets, and we believe the firm should be able to generate economic returns above the weighted average cost of capital for at least the next 20 years. We estimate the return on invested capital to average 19.8% over our 10-year forecast period, well above our weighted-average cost of capital of 7.5%.

The paint stores group is Sherwin’s largest segment and primarily serves professional painters, builders, property managers, and certain industrial customers. We believe this segment merits a wide moat, underpinned by the company’s dense store network and strong brand reputation among professional painters for consistent quality and reliability. Independent surveys reinforce this position. Sherwin-Williams ranked the highest in interior and exterior paint, as well as in the paint retailer category, in the 2025 J.D. Power survey. Zonda’s 2023 Builder Brand Use Study ranked Sherwin as the paint brand most familiar to builders and the one most frequently used over the past two years.

The company’s vertically integrated distribution model allows it to control customer relationships and deliver a level of service that is difficult for competitors who are relying on third-party retail channels to replicate. Its extensive network of over 4,800 stores ensures convenient access to products near job sites. Contractors often operate on tight schedules where downtime can be costly, and the proximity to Sherwin stores allows them to quickly replenish supplies without significant travel time. Beyond convenience, the stores function as service hubs that provide color matching, product recommendations, and technical support tailored to professional customers. Sherwin has also built a range of services that embed the company into a contractor’s day-to-day operations. Programs such as the PRO+ platform effectively act as a back office for small and midsize painting businesses, offering features such as volume-based rewards programs, digital ordering platforms, and detailed purchase records that allow stores to instantly retrieve exact paint formulas from prior jobs if a contractor needs to perform touch-ups years later. Sherwin also offers 0% interest credit lines that allow contractors to purchase materials upfront and repay the balance after receiving payment from their own customers, improving working capital management for small businesses. In addition, optional job-site delivery services for large projects reduce the need for contractors to send crew members to pick up supplies, saving time and labor.

Labor typically accounts for 80%-90% of the total cost of a painting project, while materials represent only 10%-20%. As a result, professional contractors prioritize products that improve job-site efficiency and reduce the risk of rework rather than focusing solely on the upfront price of paint. We believe this dynamic supports Sherwin’s ability to maintain premium pricing. The company has implemented annual price increases, typically in the mid- to high-single-digit range, which have offset input cost pressures over time, and importantly, volumes have remained resilient despite these increases.

The consumer brands group sells Sherwin-branded paints and coatings primarily through third-party retailers such as Lowe's and Menards, and we believe the segment also warrants a wide moat. Roughly 80%-85% of customers in this channel are do-it-yourself consumers, with professional painters accounting for the remainder. While DIY customers tend to be more price-sensitive and can easily compare products across brands, Sherwin benefits from strong brand recognition and a reputation for product quality that supports demand. The company holds the leading share of decorative paint sold through retail channels at roughly 34%, ahead of Masco at approximately 25%.

The performance coatings group primarily serves industrial customers across end markets such as packaging, automotive refinish, marine, and general manufacturing. The segment’s scale expanded significantly after the Valspar acquisition, which strengthened Sherwin’s position in industrial and packaging coatings globally. We believe the segment benefits from a narrow economic moat primarily driven by switching costs, as coatings are often integrated into customers’ manufacturing processes and tailored to specific production requirements. Industrial coatings are typically engineered to meet a customer’s exact specifications and performance characteristics, such as dry time, cure time, durability, and abrasion resistance, which can directly affect production efficiency and the quality of the finished product. In many cases, specialized application equipment and tightly controlled processes are designed around a particular coating system. This dynamic creates meaningful customer stickiness that is generally not present in the architectural paint market. In certain end markets, such as packaging, switching costs are further reinforced by regulatory and qualification barriers. Coating used in food and beverage cans, for example, must meet strict regulatory standards enforced by agencies such as the US Food and Drug Administration and other international safety authorities. Once a coating system is approved and integrated into a manufacturer’s production line, customers are often reluctant to undergo the time consuming and costly requalification process required to introduce a new supplier. These regulatory hurdles and technical integration requirements create durable relationships between coating suppliers and customers, supporting the segment’s narrow moat.

Professional painters have favored Sherwin-Williams products for decades, fostering strong brand loyalty and giving the company meaningful pricing power.

Sherwin’s large network of company-owned stores allows it to control distribution, maintain product availability, and provide technical support to painters. This strengthens customer relationships and creates entry barriers for competitors.

As housing turnover and construction activity recover, demand across Sherwin’s key end markets should improve, creating favorable conditions for volume growth and continued market share gains.

A sustained slowdown in housing turnover, housing starts, and commercial construction could limit volume growth in the near term.

Higher cost of raw materials such as titanium dioxide or petrochemicals could lead to margin contraction if Sherwin is not able to pass along those costs to customers.

Sherwin has continued to open 80-100 company-owned stores per year, but market saturation could become a concern over time. If the pace slows, the company’s ability to drive incremental growth through network expansion could moderate.