Sherwin Williams Co

Strong paint business with steady earnings, but the shares trade well above our base-case value.

Sherwin-Williams makes paint, coatings and related products, and sells them through its own paint stores, home centres, hardware retailers and industrial customers. Revenue in the latest year was $23.6B, and net income was $2.6B. Our tests show consistent earning power, with no loss years across the filings and an operating margin averaging 16%. The price is the problem: at $335.20 per share, our base-case value is $142.54, even the bull case of $254.29 sits below the price, and the owner earnings yield of 2.4% trails the ten-year Treasury yield of 5.1%.

Sherwin-Williams makes paint, coatings and related products and sells them through its own company-operated paint stores, through home centres and hardware retailers, and to industrial and automotive customers. Its Paint Stores Group is the largest seller, with $23.6B of consolidated revenue across all segments in the latest year. The company keeps a large share of its own production in-house, which helps margins.

• Store network of company-operated paint stores, with 80 to 100 net openings planned for 2026
• Brand strength in architectural paint and coatings, supported by long-running trademarks
• Selling price increases in the Paint Stores Group
• Industrial and automotive coatings sold through the Performance Coatings Group
• Acquisitions, most recently Suvinil in Brazil

Inside the circle? The core paint business has a long record of steady earnings, with no loss years across the filings reviewed and a narrow range of operating margins. However, demand depends on housing, interest rates and industrial cycles, and the stated outlook for 2026 is softer. Ten-year economics are reasonably clear for the core, but the price of the shares leaves little room for error.

The protection comes mainly from the brand and from the company's own paint stores and factories. The filing says customer recognition of its trademarks contributes significantly to sales, but it gives no market share figure to test that claim. Cross-checks on margins and returns point the same way: gross margin averaged 46% with a volatility of 2.8%, and return on invested capital averaged 24% and never fell below 16%. Pricing power is visible in the latest year, where price rises offset lower volume, but the excerpts give no full-cycle history of prices. Return on equity averaged 60%, but debt of $10.9B sits behind that figure, so it does not prove a stronger moat on its own.

Management returns large sums to owners through dividends and share repurchases, and the share count has fallen over the period. Buybacks create value only when shares are bought below intrinsic value (the present value of cash the business can pay out over its remaining life), and our base case of $142.54 per share sits well below the price of $335.20, so buying at this price does not pass that test. Debt has risen with the Suvinil acquisition and the new headquarters, and the filing places net debt near the upper end of its own target range. Capital spending runs above depreciation, so the business needs steady reinvestment to hold its position. The filing is detailed about these facts, but it leans on adjusted earnings and on phrases such as strong results and confidence, which we read as promotional.

• The share count has changed by -1.4% a year, so repurchases are reducing the number of shares. The filing says repurchases depend on cash position and market conditions, which leaves timing to management.
• Dividend payout has averaged 27% of earnings. That leaves room for reinvestment, but the payout is paid from earnings that are themselves tied to a borrowed balance sheet.
• Total debt stands at $10.9B with net cash of -$10.7B. Short-term borrowing rose during the year to fund the Suvinil acquisition, according to the filing.
• The filing reports adjusted diluted earnings per share next to the US GAAP figure and excludes acquisition amortisation from the adjusted measure. Owners should read the two figures side by side.

• FailsMargin of safetyFails

  At $335.20, the price is above the base-case value of $142.54 (the bear case is $63.68), so there is no margin of safety (-135%). The standard lens asks for 25%.

  Why this test
• FailsInterest rates are gravityFails

  The owner-earnings yield is 2.4% against a 10-year Treasury yield of 5.1%.

  Why this test

Several of Buffett's tests look favourable. The business is one most people can understand, and our tests of consistent earning power and owner earnings both pass. Owner earnings means the cash an owner could take out after keeping the business competitive, and free cash flow has averaged 108% of reported profit. The retained earnings test also passes, with $13.0B kept over the period and 4.5× of market value created for each dollar. Pricing power is visible in the latest year: the filing says Paint Stores Group sales rose 'primarily due to selling price increases', yet the excerpts give no market share figures and no full-cycle price history to test the claim. Return on equity averaged 60%, but the equity base is small and total debt is $10.9B, so the return is partly borrowed. Interest rates are gravity fails in our tests, since the owner earnings yield of 2.4% sits below the Treasury yield. The margin of safety test fails at -135%. Management returns cash through dividends and buybacks, and the share count has fallen by -1.4% a year, which only creates value if shares are bought below intrinsic value. The filing is detailed, but it leans on adjusted earnings and on phrases such as 'we have confidence in our differentiated strategy', which we read as promotional rather than candid.

• Selling price increases in the Paint Stores Group, and whether volume falls as prices rise

  Sustained price rises without a large loss of volume would support the pricing power the moat depends on.

• Total debt, interest expense and the debt payback period

  The filing says the 'incremental interest expense related to the new global headquarters' and the Suvinil acquisition will add cost, which lengthens the time needed to repay debt.

• Share repurchases and the price paid for them

  A falling share count only creates value for owners if the shares are bought below intrinsic value, which the current price does not appear to be.

• Return on invested capital in the latest year, and whether invested capital turns positive

  The latest year could not be measured, so the business has not yet shown its return on the capital it uses in a form our tests can confirm.

• Demand commentary on housing, mortgage rates and industrial markets

  The filing says it expects 'the recent and continued combination of high interest rates and inflation to continue to impact consumer and manufacturing customer behavior in 2026'.

Questions the filings couldn't answer

• How much of the return on equity comes from borrowing, given the small equity base? The excerpts do not show invested capital across a full cycle.
• Does pricing power hold through a full economic cycle? The excerpts contain no market share figures and no long price history.