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).
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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)
YearYear 1Year 3Year 5Year 7Year 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 Factor0.9170.7720.6500.5470.422
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 & DriversBasic 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.