SHW — America's paint compounder with a 60%+ ROE, trading at its own five-year P/E average while 82% above peers

Stock: The Sherwin-Williams Company (NYSE: SHW) | Sector: Materials / Specialty Chemicals | Market cap: $78.7B 1

Price (Jun 18, 2026 close): $320.79 | 52-week range: $289.86–$379.65 | Next earnings: July 21, 2026 (before market open) 2

Why SHW passed the screen today

Criterion	SHW result	Pass?
ROE > 15% — FY2023	70.07% (avg-equity) / 67.5% (SEC period-end) 3 4	✅
ROE > 15% — FY2024	69.05% (avg-equity) / 66.0% (SEC period-end) 3 4	✅
ROE > 15% — FY2025	59.39% (avg-equity) / 61.2% (SEC period-end) 3 4	✅
FCF positive — all three years	$2,634M / $2,083M / $2,654M / $2,905M TTM 5	✅
Valuation reasonable	Trailing P/E 30.79× near 5-yr avg ~31×; 82% above peer median (PPG 16.94×, RPM 20.80×) 3 6	⚠️ FLAGGED

ROE methodology note: Two independent methods — StockAnalysis's average-equity approach and SEC XBRL period-end equity — both put SHW above 59% for every fiscal year. That gap between methods ($120–$243M) is due to definitional differences in net income (SEC GAAP includes items StockAnalysis excludes). Both confirm Gate 1 passes by a factor of 4×. 3 4

Valuation flag explained: Gate 3 is flagged — not failed. At 30.79×, SHW's trailing P/E sits in line with its own five-year historical average of ~31–32× but runs 82% above the peer median. The premium has a structural explanation (60%+ ROE against peers generating 19–21%), but the spread is wide enough to warrant visibility rather than a clean pass. Four analyst downgrades in five months (UBS, Wells Fargo, Deutsche Bank, KeyBanc) reflect the same concern. 2

Trailing P/E

30.79×

EV/EBITDA

20.42×

ROE (FY2025)

59.39%

FCF (TTM)

$2.91B

P/B

17.75×

Next earnings

Jul 21

正在加载统计卡片…

What Sherwin-Williams actually does

Founded in 1866 by Henry Sherwin and Edward Williams in Cleveland, Ohio, Sherwin-Williams is the largest paint and coatings company in the United States by market share, operating across four business segments. 7

The business architecture is built around a controlled distribution advantage that competitors cannot easily replicate. The Paint Stores Group — which accounts for roughly 57% of revenue — operates more than 4,900 company-owned stores in North America, selling directly to professional contractors and DIY customers without relying on third-party home improvement retailers. This channel commands higher margins and closer contractor relationships than shelf-space at a big-box retailer. 1

The three remaining segments add breadth: Consumer Brands (~22% of revenue) covers branded and private-label products sold through third-party retailers under names including Valspar, Minwax, Krylon, Dutch Boy, and Thompson's WaterSeal; Performance Coatings (~21%) serves industrial wood finishing, automotive OEM and refinish, general industrial, and packaging applications; and Administrative houses the company's new headquarters and R&D center currently under construction in downtown Cleveland.

SHW employs 64,249 people, is a member of the Dow Jones Industrial Average and S&P 500, and completed a 3-for-1 stock split in April 2021. Revenue for FY2025 totaled $23.6B. 7

ROE: three years between 59% and 70%

SHW's ROE profile is structurally elevated relative to most industrial companies. Two forces produce it: genuine operating profitability at scale, and an equity base compressed by $1.4–1.7B in annual share buybacks that reduce the denominator. Both are real — the ROE is not an illusion, but investors should understand what is driving it.

Fiscal year (ends Dec 31)	Net income	Avg. shareholders' equity	ROE (avg-equity)	ROE (SEC period-end)
FY2023	$2,389M 7	~$3,409M	70.07% 3	67.5% 4
FY2024	$2,681M 7	~$3,884M	69.05% 3	66.0% 4
FY2025	$2,569M 7	~$4,325M	59.39% 3	61.2% 4
TTM (Mar 31, 2026)	—	—	66.28% 3	—

The FY2025 step-down from 69% to 59% (avg-equity basis) reflects two converging factors: net income declined 4.2% to $2,569M as soft DIY demand weighed on volume, while the equity base continued expanding from accumulated retained earnings — the denominator grew faster than the numerator. That is mechanical compression, not operational deterioration. ROIC of 15.38% TTM — measured on total invested capital rather than compressed book equity — confirms SHW generates returns well above its estimated weighted-average cost of capital. 1

Among direct peers, the ROE gap is wide. PPG Industries (NYSE: PPG), which manufactures architectural and industrial coatings, carries a trailing ROE of roughly 19.5%; RPM International (NYSE: RPM), a specialty coatings and sealants manufacturer, runs at ~21.2%. SHW's 60%+ runs at approximately 3× the peer level. 8 9

Free cash flow: $2.1B–$2.9B annually, TTM accelerating

正在加载图表…

Period	Operating CF	CapEx	FCF	YoY change
FY2023	$3,522M	-$888M	$2,634M	—
FY2024	$3,153M	-$1,070M	$2,083M	-20.9%
FY2025	$3,452M	-$798M	$2,654M	+27.4%
TTM (Mar 31, 2026)	$3,652M	-$747M	$2,905M	+9.5% vs FY2025

Source: 5

The FY2024 dip to $2.08B is explained by a CapEx spike to $1.07B — 34% of operating cash flow — driven by store expansion and new headquarters construction. By FY2025, CapEx moderated to $798M (23% of OCF) and TTM CapEx has further declined to $747M (20% of OCF), releasing cash back into FCF. The direction is upward: operating cash generation is growing while capital spending is declining as the store network matures.

FCF per share TTM stands at $11.65, putting the P/FCF at 27.1×. 1 FCF yield of 3.69% reflects the current market cap of $78.7B against $2.91B in TTM free cash flow. That yield funds both the $3.20 annual dividend (1.00% yield, payout ratio 30.5% of earnings or roughly 27% of FCF) and $1.88B in TTM share repurchases — leaving the capital return program well covered by cash generation.

Note on FCF methodology: SEC XBRL-based FCF (operating cash flow minus property/plant/equipment additions only) produces higher figures — $2.98B, $3.13B, $3.30B for FY2023–FY2025 — because the StockAnalysis figure also deducts acquisitions and certain other investing outflows. Both methods confirm FCF positive in all periods. 4 5

Valuation: in line with own history, 82% above peer median

The valuation picture has two distinct layers that pull in opposite directions.

vs. SHW's own five-year history

Year	Trailing P/E
FY2021	~48.4× (peak)
FY2022	~24.7×
FY2023	~29.6×
FY2024	~33.5×
FY2025	~31.2×
5-year avg	~31–32×
Current (Jun 18, 2026)	30.79×

Source: 6 3

Against its own history, SHW trades roughly at the five-year mean. The current 30.79× is well below the bubble peak of 48.4× in December 2021 and modestly below the post-2022 range. On this dimension, the stock is not at a premium to its own trading history.

vs. sector peers

Company	Trailing P/E	Forward P/E	P/B	EV/EBITDA	ROE (TTM)
SHW	30.79×	27.04×	17.75×	20.42×	~66%
PPG Industries	16.94×	~16×	3.25×	11.97×	~19.5%
RPM International	20.80×	~18×	4.39×	14.22×	~21.2%
Axalta Coating Systems	~11.59×	~10×	n/a	~10×	~15%

Sources: 3 8 9 6

Against peers, the premium is substantial. The trailing P/E of 30.79× is 82% above the peer median of ~16.94× (PPG), and the EV/EBITDA of 20.42× runs 44–71% above peers' 12–14× range. P/B at 17.75× reflects the degree to which buybacks have compressed book equity — it does not signal genuine premium to asset value, but it does illustrate how aggressively capital is being returned.

The case for the premium: SHW's ROE of ~66% is roughly 3× the peer group. A company generating 66% returns on equity will — and should — trade at a higher P/B and P/E than one generating 19–21%. The PEG ratio of 2.64× (based on consensus 3-year forward EPS growth of 9.20%) is above 1.0, confirming this is not a growth-at-a-discount setup. The premium is justified only if the ROE holds and the housing market recovers. That is the core bet. 1

Analyst consensus: 24 analysts cover SHW; the consensus rating is Buy (1.96 on a 1–5 scale), with an average price target of $372.95–$375.21, implying ~16% upside from the June 18 close. However, four downgrades in five months (UBS to Neutral at $330 in June 2026, Wells Fargo to Equal Weight in April 2026, Deutsche Bank to Hold in January 2026, KeyBanc previously) signal that Wall Street views the premium as stretched under current housing conditions. Citigroup resumed at Buy with a $355 target on June 4, 2026 — one day after the AkzoNobel bid collapsed. 2 1

Revenue and earnings: scale with steady margin expansion

正在加载图表…

Period	Revenue	YoY	Net income	Diluted EPS	Op. margin	Net margin
FY2021	$19,945M	—	$1,864M	—	12.8%	9.4%
FY2022	$22,149M	+11.1%	$2,020M	—	~14.8%	9.1%
FY2023	$23,052M	+4.1%	$2,389M	—	15.5%	10.4%
FY2024	$23,099M	+0.2%	$2,681M	—	~16.0%	11.6%
FY2025	$23,574M	+2.1%	$2,569M	—	16.2%	10.9%
TTM	$23,936M	+3.9% YoY	—	—	16.1%	12.5%

Source: 7

Revenue growth has been slow but consistent: +4.1%, +0.2%, +2.1%, +3.9% TTM. SHW is not a growth story by revenue. What is expanding is profitability: gross margin climbed from 42.8% in FY2021 to 49.0% TTM, and operating margin rose from 12.8% to 16.1% over the same span — a 330-basis-point expansion driven by pricing discipline and raw material cost management. 7

The FY2025 net income decline of 4.2% (to $2,569M from $2,681M) stands out after two strong prior-year gains. Management attributed the pressure to soft DIY/consumer demand and cautioned that FY2026 demand remains weak. In the Q1 2026 earnings call (April 28, 2026), Sherwin-Williams issued guidance for full-year consolidated net sales up low-to-mid single digits — consistent with the recent trend. Q1 2026 results came in at $5.67B revenue (+6.8% year-over-year) and diluted EPS of $2.15 (+7.5%), beating the consensus estimate, but the stock slid as management's cautious demand commentary overshadowed the beat. 10

Balance sheet: $13.8B debt, negative tangible book, adequate coverage

Metric	TTM (Mar 31, 2026)
Cash & equivalents	$217M
Total debt	$13,787M
Debt/Equity	3.00×
Interest coverage	7.82×
Current ratio	0.86×
Goodwill + intangibles	$11,889M
Tangible book value/share	-$29.92

Source: 11 1

The most arresting balance sheet figure is the negative tangible book value of -$29.92 per share (-$7,458M in aggregate). This stems directly from the 2017 Valspar acquisition (~$11.3B deal price), which left $8.0B in goodwill and $3.9B in intangibles on the balance sheet. 11 The Valspar-related intangible amortization alone reduced Q1 2026 segment profit by approximately 170 basis points. In practical terms: book value as a valuation anchor does not apply here, and a wind-down scenario recovers only the liquidation value of intangible assets.

The $13.8B debt load (D/E 3.00×, up from 2.28× for WM covered yesterday) is the second headline concern. Interest coverage of 7.82× provides adequate cushion — a 30% decline in operating earnings would still leave coverage above 5×. However, cash on hand of only $217M means SHW depends on revolving credit and operating cash flow for short-term liquidity, not a buffer. The current ratio of 0.86× and quick ratio of 0.45× reflect the same lean liquidity posture. 11

Buybacks are the primary mechanism compressing the equity base: SHW repurchased $1.88B in shares TTM, reducing share count from ~263M in FY2021 to ~247M currently (-6% over five years). That return of capital is real value to shareholders — but it means SHW's D/E ratio will remain elevated as long as the buyback program runs at its current pace. 11

Competitive positioning and moat

Sherwin-Williams' competitive advantage rests on three durable structural factors.

Controlled distribution via owned stores: The 4,900+ company-operated paint stores are not just a sales channel — they are a barrier to competition. Opening a competing specialty paint store network at that scale requires years of real estate negotiation, contractor relationship-building, and capital. Big-box retailers (Home Depot, Lowe's) carry Sherwin-Williams products and some competing brands, but professional painters and contractors overwhelmingly prefer the dedicated service, color-matching expertise, and contractor pricing available at SHW's own stores. The Paint Stores Group's revenue share (~57%) and higher margins reflect this channel advantage. 1

Brand breadth and contractor loyalty: The combined brand portfolio from the Valspar acquisition — Sherwin-Williams, Valspar, Minwax, Krylon, Dutch Boy, HGTV Home, Cabot, Thompson's WaterSeal, Purdy — covers virtually every consumer and professional paint segment. A professional painting contractor who trains on Sherwin-Williams products, earns volume rebates, and relies on color-matching at the local store faces high switching costs relative to moving to PPG or RPM. 1

Scale in procurement: As the largest architectural paint manufacturer in the United States — and one of the largest globally — SHW has raw material purchasing leverage that smaller competitors cannot match. The gross margin expansion from 42.8% to 49.0% since FY2021 reflects, in part, the ability to pass raw material cost declines through faster than competitors can. 7

ROIC of 15.38% TTM versus an estimated WACC of 9.22% confirms the moat generates economic profit rather than merely deploying capital. 1

PPG Industries is the closest structural peer — global reach, architectural and industrial coatings, meaningful brand portfolio — but PPG's revenue base is more international and its ROE significantly lower. RPM International, focused on specialty coatings and sealants (Rust-Oleum, DAP), operates in adjacent segments without SHW's direct-store distribution. 8 9

Risk factors

Risk 1 — Housing cycle sensitivity (quantified watchpoint). SHW's Paint Stores Group, which supplies professional contractors for residential repaint and new construction, is directly exposed to residential housing activity. UBS analyst Joshua Spector downgraded SHW to Neutral from Buy on June 2, 2026, cutting his price target from $385 to $330, citing a housing slowdown delaying the growth recovery outlook. 2 Monitor: US housing starts (30-day lag to SHW volumes), monthly existing home sales data, and Q2 2026 Paint Stores Group segment revenue growth at the July 21 earnings call.

Risk 2 — Valuation premium compression. The 82% P/E premium over peers is the quantified version of the valuation risk. If housing softness persists into FY2026–FY2027, consensus EPS growth estimates of 9.20% annually could compress — and a reversion from 30.79× toward 25× P/E on flat EPS would imply roughly 19% downside from current levels, negating the analyst consensus upside target. 3

Risk 3 — Lead paint litigation. SHW carries legacy lead pigment and lead-based paint litigation exposure across multiple jurisdictions. Per the SHW 10-Q, "The Company is vigorously defending all lead pigment and lead-based paint litigation. The Company expects that additional lead pigment and lead-based paint litigation may be filed." No major adverse rulings were identified in 2026, but this is an open-ended liability with no public reserve quantification. 1

Risk 4 — Insider selling with low insider ownership. Insider ownership sits at 0.33% of shares outstanding (StockAnalysis), and recent insider transactions have been predominantly sales — the CFO, Strategy VP, and Supply Chain President all sold shares in 2025–2026. No insider purchases are on record in the same window. Institutional ownership of 82.85% provides monitoring depth, but the insider selling pattern removes equity-alignment as a positive signal. 2 1

Risk 5 — Raw material cost re-acceleration. BMO Capital and Evercore ISI both cited raw material cost pressures in recent price target reductions. The 49.0% gross margin TTM represents a multi-year high; any re-acceleration in titanium dioxide (the primary white pigment), resins, or solvents could reverse the margin trend that underpins the earnings growth case. The 330-basis-point gross margin expansion since FY2021 is partly structural (pricing discipline) and partly cyclical (commodity deflation). The cyclical portion is reversible. 2

Near-term catalysts

Q2 2026 earnings — July 21, 2026, before market open. Q1 2026 delivered revenue of $5.67B (+6.8%) and EPS of $2.15 (+7.5%), beating estimates. 10 For Q2, three questions drive the read-through: (1) whether Paint Stores Group volume growth confirms housing demand is stabilizing rather than deteriorating further; (2) whether gross margin holds above 49% amid raw material cost headwinds flagged by sell-side analysts; (3) any FY2026 guidance revision relative to the "low-to-mid single digits" net sales growth forecast issued in April.

AkzoNobel M&A overhang removed (June 3, 2026). SHW and Nippon Paint abandoned their joint pursuit of Dutch paint maker AkzoNobel — valued at €12.49B ($14.53B) — after the target's board rejected two all-cash offers. SHW's stock rose on the news; the market's reaction confirmed that investors viewed the deal as potentially balance-sheet-damaging. 12 The withdrawal removes two risks simultaneously: dilutive equity issuance and incremental leverage on an already-stretched balance sheet. The trade-off is that SHW foregoes a transformative European footprint expansion. For investors focused on near-term fundamentals, the removal of M&A uncertainty is a net positive.

49-year dividend growth streak. SHW has increased its dividend for 49 consecutive years — one increase away from Dividend Aristocrat status (50 years). The current annual dividend is $3.20/share (1.00% yield), with a 30.5% payout ratio. 1 At the current FCF trajectory, the streak extension is financially comfortable; the symbolic milestone next year may attract incremental income-oriented institutional buying.

Financial Community Presentation scheduled September 24, 2026 — a potential catalyst for updated capital allocation guidance, particularly any changes to buyback authorization size or debt reduction targets. 1

Today's screening comparison

Eight candidates were evaluated against the three hard screening criteria. Six failed at least one gate outright; SHW and RSG both passed, with SHW selected as today's primary pick for its decisively superior ROE and inaugural Materials sector coverage for this channel (its 36th unique sector).

Ticker	ROE FY23 / FY24 / FY25	P/E (trailing)	FCF	Result
SHW	70.1% / 69.1% / 59.4%	30.79	Positive all years	✅ PICK
RSG	17.1% / 18.6% / 18.3%	29.40	Positive all years	Backup — same sector as yesterday's WM
SYK	18.0% / 15.3% / 15.1%	35.63	Positive all years	❌ TTM ROE 14.70%, below 15% threshold
CME	12.0% / 13.3% / 14.8%	21.02	Positive all years	❌ All three fiscal years below 15%
ECL	9.1% / 17.1% / 22.5%	36.41	Positive all years	❌ FY2023 ROE 9.1%, below 15% threshold
EW	19.5% / 16.7% / 10.4%	47.34	Positive all years	❌ FY2025 ROE 10.4%, below 15% threshold
MSCI	Negative / Negative / Negative	33.27	Positive all years	❌ Negative shareholders' equity, ROE undefined
BDX	6.0% / 6.6% / 6.5%	25.00	Positive all years	❌ All three years below 10%, far short of threshold

Sources: 3 4 2

Decision framework

This is not a buy or sell recommendation. What SHW presents is a genuine industrial compounder — the #1 architectural paint company in the United States, with 4,900+ owned stores, a 49-year dividend growth streak, and an ROE that is approximately 3× the specialty coatings peer median — at a valuation in line with its own five-year history but at a significant premium to direct peers.

The bull case depends on three things aligning: (1) the housing market stabilizes in the second half of 2026, restoring volume growth to the Paint Stores Group; (2) gross margin holds at or above 49% through raw material cycle discipline; (3) the AkzoNobel withdrawal frees cash for accelerated buybacks and organic store expansion rather than sitting idle. On consensus FY2026 EPS growth of ~9.2% and a reversion to the five-year mean P/E of ~31–32×, the stock implies roughly flat returns from current levels — the upside requires either earnings acceleration or multiple expansion above history.

The bear case requires less: if housing starts fail to recover in H2 2026 and FY2026 EPS growth comes in flat rather than the consensus 9%, the 30.79× P/E premium over peers becomes harder to defend. Four recent analyst downgrades — the most specific being UBS's $330 price target implying 3% downside from the June 18 close — suggest the Street sees more near-term risk than the consensus Buy rating implies. 2

The variable to watch at Q2 earnings (July 21) is Paint Stores Group comparable store volume growth — the cleanest signal of whether residential repaint demand is recovering from the FY2025 softness. A positive surprise there is the most direct path to multiple re-expansion.

Short interest of 2.60% of float is contained. The $289.86 fifty-two-week low offers a -9.6% floor reference from current levels for those managing downside entry points. 1

This article is for informational purposes only and does not constitute investment advice. All data sourced as cited; financial figures are as of the dates noted.