The Sherwin-Williams CompanySHWNYSE
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DCF Valuation
DCF Valuation Summary
Strong Sell
Fair Value: $220.80 per share(market-calibrated)
-36.5%
Upside to Fair Value
Current
$347.62
Pure Model
$209.99
Fair Value
$220.80
Bull Case
$260.11
Bear Case
$163.18
Market Reality Check
Model Terminal Growth
2.25%
Market-Implied Growth
5.93%
Calibrated Growth
3.17%
Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $209.99.
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 $347.62, the market implies 5.93% perpetual growth — 368bps 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)85.49%
Debt Weight (D/V)14.51%
WACC Calculation
WACC = (E/V × Re) + (D/V × Rd × (1-Tc))
WACC = (85.49% × 10.17%) + (14.51% × 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$183.51
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$58.3B
Shares Outstanding246M
Price per Share$236.47
Pure Model Fair Value
$209.99
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% | $265.33 | $274.36 | $285.30 | $298.80 | $315.89 |
| 8.01% | $229.69 | $235.64 | $242.63 | $250.94 | $260.99 |
| 9.01% | $201.16 | $205.27 | $209.99 | $215.47 | $221.89 |
| 10.01% | $177.56 | $180.51 | $183.84 | $187.63 | $191.98 |
| 11.01% | $157.60 | $159.77 | $162.20 | $164.92 | $167.99 |
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
$163.18
-53.1% vs current
- • -25% vs analyst consensus
- • Terminal growth: 2.0%
- • Beta: 1.57
Base Case
$209.99
-39.6% vs current
- • Analyst consensus
- • Terminal growth: 2.3%
- • Beta: 1.26
Bull Case
$260.11
-25.2% 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.