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The challenging market conditions facing Sherwin-Williams may present a potential opportunity for investors.
Shares in the paint and coatings provider Sherwin-Williams (SHW -3.98%) experienced a decline of nearly 5% following the release of its third-quarter earnings report, which fell short of analysts’ expectations for both earnings per share and total revenue.
This disappointing performance not only impacted Sherwin-Williams but also caused a ripple effect, leading to declines in major home improvement retailers Home Depot (HD -1.28%) and Lowe’s (LOW -1.65%). At 1:10 p.m. ET, Sherwin-Williams shares were down by 4.2%, while Home Depot and Lowe’s saw decreases of 1.4% and 1.8%, respectively.
However, this downturn in stock prices may create a buying opportunity for discerning investors. Notably, despite today’s losses, Sherwin-Williams has seen a 20% increase in stock value over the past six months.
Sherwin-Williams highlights a “choppy” demand landscape
The company’s adjusted earnings per share came in at $3.37, falling short of the anticipated $3.55, according to FactSet Research. Additionally, net sales reached $6.16 billion, which was slightly below the forecast of $6.2 billion. CEO Heidi G. Petz pointed to a “choppy” demand environment as a key factor contributing to these figures.
Despite the disappointing quarterly results, the company did report positive growth metrics. Diluted net income per share rose by 7.8% year over year, and same-store paint sales increased by 2.2%. Furthermore, Sherwin-Williams reaffirmed its full-year earnings guidance, predicting an 8.7% increase at the midpoint compared to 2023.
Market challenges factored into forecasts
Petz noted that the company had widened its full-year guidance range to account for various factors, including demand related to repairs and rebuilding from the damage inflicted by Hurricanes Helene and Milton.
While the plight of those affected by the storms is deeply felt, companies like Sherwin-Williams, Home Depot, and Lowe’s are poised to play crucial roles in the lengthy recovery processes. This reality alone may not be sufficient motivation for investors to buy the dip in these leading home improvement stocks. It’s worth noting that both companies had previously adjusted their full-year sales forecasts following their second-quarter results.
This suggests that the market has already reacted to the turbulent and “choppy” conditions mentioned by Sherwin-Williams. With Home Depot and Lowe’s set to announce their third-quarter results next month, there remains a risk that any further disappointing news could lead to additional declines in their stock prices.
Both retailers have recently retreated from their multiyear highs, but barring any unexpected developments, there is potential for a rebound. If the upcoming earnings reports align with expectations, today’s market reaction to Sherwin-Williams could present a favorable buying opportunity.
Howard Smith has positions in Home Depot. The Motley Fool has positions in and recommends FactSet Research Systems and Home Depot. The Motley Fool recommends Lowe’s Companies and Sherwin-Williams. The Motley Fool has a disclosure policy.
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