Stock Analysis on Net

Sherwin-Williams Co. (NYSE:SHW)

This company has been moved to the archive! The financial data has not been updated since July 27, 2022.

Dividend Discount Model (DDM) 

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Sherwin-Williams Co., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 14.23%
0 DPS01 2.20
1 DPS1 3.00 = 2.20 × (1 + 36.46%) 2.63
2 DPS2 3.92 = 3.00 × (1 + 30.63%) 3.01
3 DPS3 4.89 = 3.92 × (1 + 24.81%) 3.28
4 DPS4 5.82 = 4.89 × (1 + 18.98%) 3.42
5 DPS5 6.59 = 5.82 × (1 + 13.16%) 3.39
5 Terminal value (TV5) 694.86 = 6.59 × (1 + 13.16%) ÷ (14.23%13.16%) 357.29
Intrinsic value of Sherwin-Williams Co. common stock (per share) $373.01
Current share price $231.97

Based on: 10-K (reporting date: 2021-12-31).

1 DPS0 = Sum of the last year dividends per share of Sherwin-Williams Co. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.53%
Expected rate of return on market portfolio2 E(RM) 13.63%
Systematic risk of Sherwin-Williams Co. common stock βSHW 1.07
 
Required rate of return on Sherwin-Williams Co. common stock3 rSHW 14.23%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rSHW = RF + βSHW [E(RM) – RF]
= 4.53% + 1.07 [13.63%4.53%]
= 14.23%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Sherwin-Williams Co., PRAT model

Microsoft Excel
Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in thousands)
Cash dividends 587,100 488,000 420,800 322,934 319,029
Net income 1,864,400 2,030,400 1,541,300 1,108,746 1,772,262
Net sales 19,944,600 18,361,700 17,900,800 17,534,493 14,983,788
Total assets 20,666,700 20,401,600 20,496,200 19,134,279 19,958,427
Shareholders’ equity 2,437,200 3,610,800 4,123,300 3,730,745 3,692,188
Financial Ratios
Retention rate1 0.69 0.76 0.73 0.71 0.82
Profit margin2 9.35% 11.06% 8.61% 6.32% 11.83%
Asset turnover3 0.97 0.90 0.87 0.92 0.75
Financial leverage4 8.48 5.65 4.97 5.13 5.41
Averages
Retention rate 0.74
Profit margin 9.43%
Asset turnover 0.88
Financial leverage 5.93
 
Dividend growth rate (g)5 36.46%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

2021 Calculations

1 Retention rate = (Net income – Cash dividends) ÷ Net income
= (1,864,400587,100) ÷ 1,864,400
= 0.69

2 Profit margin = 100 × Net income ÷ Net sales
= 100 × 1,864,400 ÷ 19,944,600
= 9.35%

3 Asset turnover = Net sales ÷ Total assets
= 19,944,600 ÷ 20,666,700
= 0.97

4 Financial leverage = Total assets ÷ Shareholders’ equity
= 20,666,700 ÷ 2,437,200
= 8.48

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.74 × 9.43% × 0.88 × 5.93
= 36.46%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($231.97 × 14.23%$2.20) ÷ ($231.97 + $2.20)
= 13.16%

where:
P0 = current price of share of Sherwin-Williams Co. common stock
D0 = the last year dividends per share of Sherwin-Williams Co. common stock
r = required rate of return on Sherwin-Williams Co. common stock


Dividend growth rate (g) forecast

Sherwin-Williams Co., H-model

Microsoft Excel
Year Value gt
1 g1 36.46%
2 g2 30.63%
3 g3 24.81%
4 g4 18.98%
5 and thereafter g5 13.16%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 36.46% + (13.16%36.46%) × (2 – 1) ÷ (5 – 1)
= 30.63%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 36.46% + (13.16%36.46%) × (3 – 1) ÷ (5 – 1)
= 24.81%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 36.46% + (13.16%36.46%) × (4 – 1) ÷ (5 – 1)
= 18.98%