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Sherwin-Williams Continues Its Valuation Supremacy

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Sherwin-Williams’ forward PE

Previously we saw the opinions and recommendations of various analysts on Sherwin-Williams (SHW). In this part, we’ll look into SHW’s forward price-to-earnings ratio compared with peer PPG Industries (PPG). As of December 22, 2017, SHW’s one-year forward price-to-earnings multiple stood at 22.80x, while PPG Industries’ one-year forward PE stood at 17.60x.

The forward price-to-earnings valuation method takes future estimated earnings into consideration and helps investors to compare two or more companies operating in the same industry. The metric helps investors judge which company is overvalued and which company is undervalued.

Sherwin-Williams maintains the gap

SHW continues to trade at a premium compared to peer PPG. Historically, SHW’s earnings per share have been on an upward trend, while PPG’s earnings per share have remained volatile. As a result, SHW has a history of trading at a premium. SHW continues its integration of Valspar and is working towards cost synergies that could drive the future earnings growth. As a result, analysts are expecting SHW’s fiscal 2018 earnings per share to come in at $18.17, representing an increase of approximately 23.5% over the expected earnings in fiscal 2017.

On the other hand, PPG Industries’ fiscal 2018 earnings per share are expected to rise 12.6% over the 2017 expected earnings per share, which explains why SHW continues to trade at a premium to PPG Industries.

Investors looking for indirect exposure to Sherwin-Williams can invest in the Vanguard Materials ETF (VAW), which has invested 4.1% of its portfolio in Sherwin-Williams. The fund also provides exposure to LyondellBasell (LYB) and Air Products and Chemicals (APD), which have weights of 4.4% and 4.2%, respectively, as of December 22, 2017.

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