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 the Firm (FCFF)

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. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.


Intrinsic Stock Value (Valuation Summary)

Sherwin-Williams Co., free cash flow to the firm (FCFF) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 12.48%
01 FCFF0 2,153,465
1 FCFF1 2,362,509 = 2,153,465 × (1 + 9.71%) 2,100,382
2 FCFF2 2,588,576 = 2,362,509 × (1 + 9.57%) 2,046,022
3 FCFF3 2,832,691 = 2,588,576 × (1 + 9.43%) 1,990,551
4 FCFF4 3,095,906 = 2,832,691 × (1 + 9.29%) 1,934,135
5 FCFF5 3,379,294 = 3,095,906 × (1 + 9.15%) 1,876,937
5 Terminal value (TV5) 110,890,802 = 3,379,294 × (1 + 9.15%) ÷ (12.48%9.15%) 61,591,278
Intrinsic value of Sherwin-Williams Co. capital 71,539,305
Less: Debt (fair value) 10,542,800
Intrinsic value of Sherwin-Williams Co. common stock 60,996,505
 
Intrinsic value of Sherwin-Williams Co. common stock (per share) $235.34
Current share price $231.97

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

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.


Weighted Average Cost of Capital (WACC)

Sherwin-Williams Co., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 60,122,693 0.85 14.21%
Debt (fair value) 10,542,800 0.15 2.63% = 3.29% × (1 – 20.08%)

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

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 259,183,053 × $231.97
= $60,122,692,804.41

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (17.10% + 19.40% + 22.20% + 16.60% + 25.10%) ÷ 5
= 20.08%

WACC = 12.48%


FCFF Growth Rate (g)

FCFF 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)
Interest expense 334,700 340,400 349,300 366,734 263,471
Net loss from discontinued operations (41,540)
Net income 1,864,400 2,030,400 1,541,300 1,108,746 1,772,262
 
Effective income tax rate (EITR)1 17.10% 19.40% 22.20% 16.60% 25.10%
 
Interest expense, after tax2 277,466 274,362 271,755 305,856 197,340
Add: Cash dividends 587,100 488,000 420,800 322,934 319,029
Interest expense (after tax) and dividends 864,566 762,362 692,555 628,790 516,369
 
EBIT(1 – EITR)3 2,141,866 2,304,762 1,813,055 1,414,602 2,011,142
 
Short-term borrowings 763,500 100 204,700 328,403 633,731
Current portion of long-term debt 260,600 25,100 429,800 307,191 1,179
Long-term debt, excluding current portion 8,590,900 8,266,900 8,050,700 8,708,057 9,885,745
Shareholders’ equity 2,437,200 3,610,800 4,123,300 3,730,745 3,692,188
Total capital 12,052,200 11,902,900 12,808,500 13,074,396 14,212,843
Financial Ratios
Retention rate (RR)4 0.60 0.67 0.62 0.56 0.74
Return on invested capital (ROIC)5 17.77% 19.36% 14.16% 10.82% 14.15%
Averages
RR 0.64
ROIC 15.25%
 
FCFF growth rate (g)6 9.71%

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).

1 See details »

2021 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 334,700 × (1 – 17.10%)
= 277,466

3 EBIT(1 – EITR) = Net income – Net loss from discontinued operations + Interest expense, after tax
= 1,864,4000 + 277,466
= 2,141,866

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [2,141,866864,566] ÷ 2,141,866
= 0.60

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 2,141,866 ÷ 12,052,200
= 17.77%

6 g = RR × ROIC
= 0.64 × 15.25%
= 9.71%


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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (70,665,493 × 12.48%2,153,465) ÷ (70,665,493 + 2,153,465)
= 9.15%

where:

Total capital, fair value0 = current fair value of Sherwin-Williams Co. debt and equity (US$ in thousands)
FCFF0 = the last year Sherwin-Williams Co. free cash flow to the firm (US$ in thousands)
WACC = weighted average cost of Sherwin-Williams Co. capital


FCFF growth rate (g) forecast

Sherwin-Williams Co., H-model

Microsoft Excel
Year Value gt
1 g1 9.71%
2 g2 9.57%
3 g3 9.43%
4 g4 9.29%
5 and thereafter g5 9.15%

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 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 9.71% + (9.15%9.71%) × (2 – 1) ÷ (5 – 1)
= 9.57%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 9.71% + (9.15%9.71%) × (3 – 1) ÷ (5 – 1)
= 9.43%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 9.71% + (9.15%9.71%) × (4 – 1) ÷ (5 – 1)
= 9.29%