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Morningstar | Sherwin-Williams Is Leveraged To Housing Market Improvements Through Professional Paint Contractors

As the largest supplier of architectural coatings in the United States with approximately a third of the market, Sherwin-Williams is the go-to provider of premium paint for contractors in the industry. While U.S. paint volume has rebounded from global financial crisis lows, it has yet to reach its previous peaks, despite a larger stock of structures that require repainting. We believe incremental paint volume will be driven by higher existing-home sales and housing starts. Residential repainting makes up the bulk of paint volume sold, so existing-home sales are a key driver of company revenue. Painting is seen as a low-cost way to spruce up a property for sale. The best type of transaction for the company is an owner-occupant repainting walls to sell to a new owner, who repaints them in different colors to fit his or her preferences.Housing starts were among the hardest-hit construction activities during the recession and have yet to rebound. We believe they will be the key driver of incremental paint volume and see a strong decade to come due to favorable demographic trends, with millennials reaching homebuying age, and with greater credit availability. We think Sherwin-Williams will continue to gain market share, driven by the continued transition from do-it-yourself to contractors. The company benefits from favorable demographic trends, as people 60 and older are the fastest-growing homeowner segment. They tend to rely on contractors instead of painting themselves. Sherwin-Williams also has a strong foothold in the aging and growing Southern and Southeastern regions of the U.S. Contractors mostly shop at specialty paint stores like Sherwin-Williams rather than big-box locations because of the formers' paint quality and high service levels. Labor is a far more costly component of a painting job than the paint itself, which is typically passed-through. Contractors are willing to pay a premium for Sherwin-Williams brand paint, as its quality and ease of use decrease the time needed to complete each job.