The Sherwin-Williams Company (SHW)

Total return at 5 years: 0.1%/year = -1.0% appreciation + 1.1% dividend. The target price ($305) is ex-dividend; the $17 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $307 · Multiples $259) is below the market price ($320).

Today — expensive, no margin of safety: at $320 trades ~23.5% above its value discounted to today (~$259); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Preserva valor: the target price ($305) plus dividends yield just enough to preserve nominal capital, below the required 4% floor.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$163.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($320) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The implied growth (6.9%/year) is in line with our base case (6.0%/year) → the price is consistent with the projection.

That growth implies ~$3.6 bn of owner earnings in year 5 (vs ~$3.5 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Resultado operativo (EV/EBIT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 = TTM to 30-Jun-2026 (revenue US$24,410.3 million, net income US$2,688.2 million). Year 1 anchors to the company's guidance in the 8-K of 28-Jul-2026 (Item 2.02): consolidated 2026 revenue with a «mid-to-high single digit percentage increase» and diluted earnings per share of US$10.92-11.32 (GAAP), implying revenue growth of ~6.5% and aggregate net income growth of ~6.6% in the first year, taking the midpoint of the guided range. The path decelerates smoothly toward durable revenue growth of ~4.5% by year 5, typical of a mature specialty retail chain tied to the construction and housing cycle. The net margin stays nearly flat in year 1 (raw material inflation pressures the gross margin, partly offset by pricing actions, including an 8% increase in Paint Stores Group effective 1 September 2026) and expands gradually toward year 5 on operating leverage and the savings from the announced restructuring (~US$17 million a year). GAAP operating income is used (not the adjusted earnings the company guides) to maintain consistency between reported history and the projection, since the historical series of adjusted earnings prior to 2025 is not available. Projected capex stays in line with depreciation and amortization (maintenance capex ≈ D&A), consistent with an already-deployed store network. Diluted shares fall at a pace of ~1.5%/year in the base case, reflecting the sustained net buyback of the last three years (from 261.8 million in 2022 to 246.0 million in the TTM), modeled via sharesPath (cash is not accumulated: the surplus goes to buybacks and the dividend). The base exit multiple is 14.4× EV/EBIT at 5 years, within the 12-17× band of the specialty retail archetype, positioned in the upper half for the exceptional ROIC (~22.7%) and the wide and stable moat, but without reaching the ceiling given modest terminal growth (~4.5%) and cyclical exposure to the housing cycle.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $305 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $320, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $305 in 5 years plus $17 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $259. Against the current market price ($320), the margin of safety is -23.5% (trades above the maximum → a premium is paid) and the total return at that price would be 0.1% annually.

• Entry multiple. The stock trades at 22× operating income over the trailing twelve months, well above the 12-17× band of the specialty retail archetype.
• No market discount. The current price shows none of the typical discount of a value opportunity.
• Expected return (base case). The base case implies a negative total return over 5 years once the dividend is incorporated, due to the gap between the current entry multiple and the exit multiple from the band.
• Favorable scenario. Even in the favorable scenario (revenue +8% in year 1, expanding margin, multiple at the top of the band), the 5-year return is moderate and does not fully offset the current entry price.
• Quality vs. price. The business is of exceptional quality (ROIC ~22.7%, a wide and stable moat), but the method distinguishes the business from the price: an excellent company is not automatically a good purchase at any multiple.
• Margin of safety. The margin of safety today is negative under Graham's definition (price above present value at the risk-free-rate floor).

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (108%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Cash generation. Operating cash flow of US$3,887 million in the trailing twelve months, with capex practically equal to depreciation.
• Sustained ROIC. ~22.7% on real invested capital, well above the 10% bar, an exceptional rating (≥20%).
• Reinvestment runway. Capex barely matches depreciation, a signal of a business whose store rollout has already matured and that does not have a high-rate reinvestment runway ahead.
• Earnings quality. Net income includes intangible amortization from the Valspar acquisition (US$0.81 per share guided for 2026) that the company excludes from its adjusted metric; the GAAP basis was preferred to avoid mixing unadjusted historicals with adjusted projections.
• Stock-based compensation. Stock-based compensation expense represents just 0.5% of revenue, with no material trap to correct in the metric.
• Historical consistency. Two nearly flat years (2024-2025) followed by a recent acceleration show that the business's quality is not linear year to year, but subject to the housing cycle.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Sherwin-Williams's growth breaks down by segment into volume × price: in Paint Stores Group, the driver is comparable-store sales (same-store sales, +4.2% in the second quarter of 2026 versus +0.8% a year earlier) combined with net openings of new stores; in Consumer Brands Group, the driver is wholesale volume plus the inorganic contribution of acquisitions such as Suvinil; in Performance Coatings Group, the driver is industrial and automotive volume plus the foreign exchange effect. The second-quarter 2026 acceleration across all three segments, above original guidance, is the basis for the upward revision of full-year earnings-per-share guidance.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Trailing-twelve-month revenue. +5.8% year-over-year, accelerating after +0.2% in 2024 and +2.1% in 2025.
• 2026 guidance. The company guided to a mid-to-high single-digit percentage increase for 2026, the anchor for year 1 of the model.
• M&A contribution. The Suvinil acquisition contributed US$164.5 million to Consumer Brands Group in 2025, approximately 5.3% of the segment's growth: part of the recent growth is not organic.
• Volume vs. price at Paint Stores Group. 2025 growth in the segment (+3.2%) came from price (mid-single-digit positive) with volume slightly negative, meaning recent growth is more about price than units.
• Performance Coatings Group. Practically flat in 2025 (0.0%) but accelerating to +6.3% in the second quarter of 2026, led by Automotive Refinish and General Industrial.
• Durability of terminal growth. The model converges to revenue growth of ~4.5% at year 5, within the typical range for a mature specialty retail business tied to construction.

• Recurrence and 10-year relevance. Paint is a recurring replacement product in construction, maintenance, and renovation; the category shows no risk of structural obsolescence.
• Product differentiation. The portfolio of recognized brands competes on quality and technical expertise, though the Consumer Brands Group's private-label segment is more commoditized.
• Pricing power. The company passed through mid-single-digit price increases at Paint Stores Group during 2025 and announced an additional 8% increase for September 2026, evidence of pricing power against raw material inflation.
• Operating leverage. The Paint Stores Group, with a fixed cost structure in company-owned stores, expands margin when volume grows and compresses it when volume falls, as seen in 2024-2025.
• Behavior through the cycle. Paint Stores Group volume fell during the 2023-2025 high-rate cycle despite price increases, showing real sensitivity to the housing and construction cycle.
• Sector capital cycle. There is no evidence of excess capital entering to compete with Sherwin-Williams at the scale of its 4,853 company-owned stores; the direct distribution barrier remains relevant against new entrants.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• ✓Interest coverage (EBIT / interest)8.5x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 108% of ROIC
• ✓Value creation (ROIC − 10% bar)+13pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.0x — no over-investment
• !Float / working capitalConsumes cash $0.1 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.5% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Total debt of approximately US$9,826 million against cash of just US$293.5 million; leverage is elevated for the sector, partly due to financing the Suvinil acquisition.
• Interest coverage. Derived EBIT (~US$3,946 million) amply covers annual interest expense (~US$465 million), more than 8 times.
• Operating cash generation. Operating cash flow of US$3,887 million in the trailing twelve months, with healthy cash conversion relative to net income.
• Short-term liquidity. Available cash (US$293.5 million) is low relative to short-term debt (US$1,498.4 million), requiring recurring refinancing in the debt market.
• Contractual commitments. Long-term debt maturities laddered through 2030 (US$350.1 million in 2026, up to US$1,500 million in 2027), with no single maturity concentrating refinancing risk.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Dividend track record. 47 consecutive years of dividend increases, though the increase announced in January 2026 was modest (from approximately US$0.79 to US$0.80 per share quarterly, +1.3%).
• Share buybacks. Repurchased approximately US$1,656 million in shares in 2025 and an additional 5.6 million shares in the first half of 2026, steadily reducing the diluted share count.
• M&A allocation. The Suvinil acquisition was funded primarily with new debt rather than retained operating cash, which raises leverage but does not compete with the dividend or buybacks.
• Ownership structure. No controlling shareholder; ownership is dominated by passive institutional managers and the employee 401(k) plan.
• Leadership continuity. Heidi G. Petz simultaneously holds the roles of Chair of the Board, President, and Chief Executive Officer, concentrating corporate governance in a single person.

• The market assigns it a sustained premium for its track record of 47 consecutive years of dividend increases and for the predictability of its margins relative to more cyclical industrial peers.
• The recent revenue acceleration (+5.8% year-over-year in the trailing twelve months, after two nearly flat years) fuels expectations that the housing cycle is near a bottom, which the market is beginning to pay for in advance.
• No clear source of discount is identified (no spin-off, no thin analyst coverage, no accounting one-off obscuring real value): the price fairly directly reflects the business's recognized quality.

No discrepancy between perception and reality is detected that would suggest a value opportunity: unlike a business with motivated sellers or missing buyers, Sherwin-Williams' operating income multiple (22×) far exceeds the 12-17× band of the specialty retail archetype. The market price already reflects, and likely exceeds, the business's recognized quality.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -8%/year (-34% total): the margin of safety protects the downside. The bull (+6%/year, +32% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Housing and construction cycle. Significant portions of the business depend on construction, housing, and manufacturing, all cyclical; the company did not see a significant demand improvement despite the 2025 rate cut.
• Raw materials and energy. Petroleum-derived inputs (resins, titanium dioxide, solvents) are subject to price volatility, tariffs, and supply chain disruptions, with limited supplier sources in some cases.
• Historic lead paint litigation. The company faces numerous lawsuits over the historic manufacture and sale of lead-based pigments and paints; it has no amount provisioned because it does not consider the loss probable nor can it estimate the range, but an adverse outcome could be material.
• Financial leverage. Total debt increased US$982.9 million in 2025, partly due to the Suvinil acquisition, raising vulnerability to adverse credit conditions.
• International integration and foreign exchange risk. Sales from foreign subsidiaries represent ~19.6% of the total; the company already recognized a US$41.8 million loss in 2023 from the devaluation of the Argentine peso, and the integration of Suvinil in Brazil adds further risk.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 23% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 6% at a multiple/growth of 3.7 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 5% (EBIT/EV) + ROIC 23% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 7%, in line with our 6%: perception and reality aligned.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -9%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: cost advantage, efficient scale, intangibles, switching costs → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting 7%, within what we project (6%) — the story squares with the numbers.