The Sherwin-Williams (NYSE: SHW) Q3 earnings report sparked a knee-jerk reaction in the market, opening a significant opportunity for investors. While the results did not match analysts' and market expectations, the diversified paint and coating business sustained growth and indicated business health will persist in 2025. With shares down 5% and on track to test critical technical support levels, the time to buy the stock is approaching fast. Technically, the market could rise by 20% to 40% from the critical support target over the next year, and analysts' sentiment trends back up those targets. 

Sherwin-Williams' Stock Price Has Tailwinds

For two years, robust tailwinds, including results, analysts, sentiment, and institutional activity, have driven Sherwin-Williams's price action. Those tailwinds drove the stock above a critical resistance point earlier this year and continue to blow today. 

The analysts' sentiment trends are bullish in 2024. The 20 tracked by MarketBeat.com shifted gears in July and have issued one upgrade and numerous price target increases since then, leading the market to break above critical resistance near $350 in August. They show a moderately high conviction in the Moderate Buy rating, with 65% issuing Buy or equivalent ratings and the single sell rating over 10 months old. The consensus price target assumes only a 5% upside, including the post-release price drop, but it is rising compared to last year, Q2, and the prior month. Post-release revisions align with the trend, adding strength to the tailwind. 

The three revisions tracked by MarketBeat issued within the first day of the release increased their price targets to an average of $396 compared to the $383 consensus, indicating a move to the high-end range is likely. The high-end range is $450, which aligns with the minimum technical target and will likely increase over the coming quarters. Institutions, which own more than 70% of the stock, bought on balance in Q2 and Q3, aligning with the June bottom and July stock price lift off, and are likely buyers with the share price pulling back.

Regarding the stock price action, Sherwin-Williams is retreating to test the critical resistance point for support and will likely confirm its presence. In that scenario, this market will confirm a reversal and continuation of long-term trends that could equal the magnitude of gains already made. The minimum target is equal to the June to October rally; the best-case scenario is equal to gains made since the bottom was reached in October 2022. That range of $70 to $140 equals a 20% to 40% upside from the $350 level. 

Sherwin-Williams' Diversified Business Sustains Growth

Sherwin-Williams did not have a robust Q3 but could sustain growth on the strength of its diversified business. The company reported $6.16 billion in net revenue to miss the consensus forecast by a slim margin. The growth was driven by a 3.2% gain in the Paint Stores Group, offset by declining consumer DIY sales and flat Performance Coatings Group sales. Margin is another less-than-expected but still favorable detail, with gross margin expanding, EBITDA rising at a leveraged pace, and adjusted earnings up 5.3%. Likewise, the guidance expects growth to accelerate in Q4 but slower than analysts had forecast, sufficient to sustain the balance sheet health and capital return. 

Sherwin-Williams's capital return is solid, including dividends and share buybacks. The dividend yield isn’t robust, at less than 1.0%, but it is reliable. The distribution is also growing, with a 45-year history of annual increases compounded by buybacks. The company repurchased 4.4 million shares in the first nine months of the fiscal year, reducing the count by 1.7% for the quarter and 1.6% for the year. Repurchases are expected to continue in Q4 2024 and 2025.