The Sherwin-Williams CompanySHWNYSE

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $220.75 per share(market-calibrated)

-36.7%

Upside to Fair Value

Current

$348.83

Pure Model

$209.89

Fair Value

$220.75

Bull Case

$259.99

Bear Case

$163.10

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

5.95%

Calibrated Growth

3.17%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $209.89.

What's Driving This Ratingfor SHW

✓

CapEx already efficient

CapEx at 3.20% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 20.81% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

→

Moderate revenue growth

Analyst consensus projects 4.20% revenue growth, fading to 2.25% by Year 10. Revenue reaches $32.3B (vs $23.6B today).

🎯

Market pricing in higher long-term growth

To justify $348.83, the market implies 5.95% perpetual growth — 370bps above the model's 2.25%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 65.56% indicates efficient cash generation. FCF reaches $5.0B by Year 10 (15.36% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.26

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)10.17%

Cost of Debt

Pre-tax Cost of Debt2.86%

Tax Rate23.06%

After-tax Cost of Debt2.20%

Equity Weight (E/V)85.54%

Debt Weight (D/V)14.46%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (85.54% × 10.17%) + (14.46% × 2.20%)

= 9.01%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$24.6B	$27.0B	$28.9B	$30.2B	$32.3B
EBIT	$5.1B	$5.6B	$6.0B	$6.3B	$6.7B
Tax	$1.2B	$1.3B	$1.4B	$1.5B	$1.6B
NOPAT	$3.9B	$4.3B	$4.6B	$4.8B	$5.2B
+ Depreciation	$641M	$706M	$755M	$790M	$844M
- Capex	$786M	$865M	$926M	$968M	$1.0B
- Δ NWC	$30M	$41M	$19M	$20M	$21M
Free Cash Flow	$3.8B	$4.1B	$4.4B	$4.6B	$5.0B
Discount Factor	0.917	0.772	0.650	0.547	0.422
Present Value	$3.4B	$3.2B	$2.9B	$2.5B	$2.1B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$5.0B

Terminal Growth Rate2.25%

WACC9.01%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$75.1B

PV of Terminal Value$31.7B

Exit Multiple Method

Year 10 EBITDA$7.6B

Exit Multiple (EV/EBITDA)14.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$106.0B

PV of Terminal Value$44.7B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$27.8B

PV of Terminal Value$31.7B

Enterprise Value$59.5B

(-) Net Debt$14.3B

Equity Value$45.2B

Shares Outstanding246M

Price per Share$183.38

Exit Multiple Method

PV of Projected FCFs$27.8B

PV of Terminal Value$44.7B

Enterprise Value$72.6B

(-) Net Debt$14.3B

Equity Value$58.2B

Shares Outstanding246M

Price per Share$236.40

Pure Model Fair Value

$209.89

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
7.01%	$265.19	$274.21	$285.13	$298.60	$315.66
8.01%	$229.58	$235.53	$242.50	$250.80	$260.83
9.01%	$201.07	$205.18	$209.89	$215.36	$221.78
10.01%	$177.49	$180.43	$183.76	$187.54	$191.89
11.01%	$157.53	$159.71	$162.13	$164.85	$167.91

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$163.10

-53.2% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.57

Base Case

$209.89

-39.8% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.26

Bull Case

$259.99

-25.5% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 1.07

Key Assumptions & Drivers• Basic Materials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth4.20%

Year 3 Revenue Growth5.22%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin20.81%

Tax Rate23.06%

Historical Capex / Rev3.20%

NWC / Revenue3.02%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 14x EV/EBITDA (Basic Materials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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