Stock Analysis on Net
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.

Present Value of Free Cash Flow to Equity (FCFE)

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Sherwin-Williams Co., free cash flow to equity (FCFE) forecast

US$ in thousands, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 14.11%
01 FCFE0 3,196,900
1 FCFE1 4,362,510 = 3,196,900 × (1 + 36.46%) 3,822,909
2 FCFE2 5,646,564 = 4,362,510 × (1 + 29.43%) 4,336,100
3 FCFE3 6,911,791 = 5,646,564 × (1 + 22.41%) 4,651,180
4 FCFE4 7,974,843 = 6,911,791 × (1 + 15.38%) 4,702,753
5 FCFE5 8,641,018 = 7,974,843 × (1 + 8.35%) 4,465,319
5 Terminal value (TV5) 162,507,827 = 8,641,018 × (1 + 8.35%) ÷ (14.11% – 8.35%) 83,977,290
Intrinsic value of Sherwin-Williams Co. common stock 105,955,551
 
Intrinsic value of Sherwin-Williams Co. common stock (per share) $408.81
Current share price $231.97

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

1 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 4.90%
Expected rate of return on market portfolio2 E(RM) 13.55%
Systematic risk of Sherwin-Williams Co. common stock βSHW 1.07
 
Required rate of return on Sherwin-Williams Co. common stock3 rSHW 14.11%

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]
= 4.90% + 1.07 [13.55% – 4.90%]
= 14.11%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Sherwin-Williams Co., PRAT model

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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
 
FCFE 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
= (1,864,400 – 587,100) ÷ 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%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (60,122,693 × 14.11% – 3,196,900) ÷ (60,122,693 + 3,196,900)
= 8.35%

where:
Equity market value0 = current market value of Sherwin-Williams Co. common stock (US$ in thousands)
FCFE0 = the last year Sherwin-Williams Co. free cash flow to equity (US$ in thousands)
r = required rate of return on Sherwin-Williams Co. common stock

FCFE growth rate (g) forecast

Sherwin-Williams Co., H-model

Microsoft Excel
Year Value gt
1 g1 36.46%
2 g2 29.43%
3 g3 22.41%
4 g4 15.38%
5 and thereafter g5 8.35%

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

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 36.46% + (8.35% – 36.46%) × (2 – 1) ÷ (5 – 1)
= 29.43%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 36.46% + (8.35% – 36.46%) × (3 – 1) ÷ (5 – 1)
= 22.41%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 36.46% + (8.35% – 36.46%) × (4 – 1) ÷ (5 – 1)
= 15.38%