Why Sherwin-Williams Stock Just Dropped

Ask Sherwin-Williams (NYSE: SHW) why its stock price is going down today, and your reply will probably be to ask Citigroup instead.

This morning, the investment bank downgraded shares of the paint maker from buy to neutral, and Sherwin-Williams stock is down 3.3% through 12:20 p.m. ET in response.

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What Citi thinks about Sherwin-Williams stock

"Housing dynamics" look "suppressed," warns Citi analyst Pat Cunningham in a note covered on StreetInsider.com today. Interest rates are high, and the likelihood of Federal Reserve cuts that would lower those rates looks slim. (Earlier today, J.P. Morgan's chief economist predicted the next Fed meeting will vote "unanimously" to leave rates unchanged.)

In the current economic environment, therefore, Citi says it has little "confidence in a material 2H25 US housing market recovery," nor a "favorable risk/reward" for buying Sherwin-Williams stock at its present price.

Is Sherwin-Williams stock a buy?

With its fortunes tied largely to the health of the residential housing market, Sherwin-Williams stock looks pricey at 34 times earnings, a projected growth rate of only 10%, and a meager dividend yield of just 0.9%. A better bet in the housing sector, thinks Citi, might be construction products company RPM International (NYSE: RPM), whose business is less tied to residential.

Despite its slower (8%) growth rate, RPM pays a dividend twice as big as Sherwin-Williams' (1.8%). And with its price-to-earnings ratio only 23, RPM stock costs half as much.

I'm personally not thrilled with these numbers either (paying 23x earnings for 10% growth doesn't seem much of a bargain). But Citi is right: As expensive as RPM stock looks, at least it's cheaper than Sherwin-Williams.

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Citigroup is an advertising partner of Motley Fool Money. Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends RPM International and Sherwin-Williams. The Motley Fool has a disclosure policy.