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Could Sherwin-Williams Surprise Investors?

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Analysts’ expectations

Wall Street analysts are expecting Sherwin-Williams (SHW) to post adjusted EPS (earnings per share) of $4.33 in 3Q16, compared with $3.98 in 3Q15. The projected adjusted EPS for 3Q16 implies a growth of 8.8% on a year-over-year basis.

Peer Valspar (VAL) reported adjusted EPS of $1.15 in 3Q16. For Valspar’s complete 3Q16 earnings, read Valspar’s 3Q16 Earnings: The Details. RPM International (RPM) reported adjusted EPS of $0.83 in fiscal 1Q17. For RPM’s complete fiscal 1Q17 earnings, refer to How Did RPM International Perform in Fiscal 1Q17? Meanwhile, analysts are expecting PPG Industries (PPG) to post adjusted EPS of $1.56 in 3Q16.

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Management outlook

Sherwin-Williams expects 3Q16 EPS in the range of $4.10 to $4.30, including a ~$0.10 per share net charge related to the Valspar acquisition. For fiscal 2016, Sherwin-Williams expects EPS in the range of $11.65–$11.85, with a $0.85 per share charge related to the acquisition.

The guidance is based on higher volume growth in the architectural business supported by the addition of new paint stores during the quarter. However, selling, general, and administrative expenses, the cost of goods sold, and foreign exchange translation could impact the EPS adversely.

Investors can get indirect exposure to Sherwin-Williams through the Materials Select Sector SPDR ETF (XLB), which had invested 4.1% of its portfolio in Sherwin-Williams as of October 12, 2016. In the next part, we’ll look into analysts’ expectations for SHW’s net profit margin.

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