Why Sherwin-Williams Stock Dropped Today and Took Home Depot and Lowe's Down Too

Shares of paint and coatings supplier Sherwin-Williams (NYSE: SHW) dropped as much as almost 5% after it reported third-quarter earnings today. The company missed Wall Street analyst expectations for both earnings per share and revenue.

That not only led to the stock's plunge, but also declines in leading home improvement stocks Home Depot (NYSE: HD) and Lowe's (NYSE: LOW). As of 1:10 p.m. ET, Sherwin-Williams stock was still down by 4.2%. Investors also pushed Home Depot and Lowe's stocks along with it, moving those stocks lower by 1.4% and 1.8%, respectively.

But that might be a case of tossing out the baby with the bathwater, making for an opportunity for investors. And Sherwin-Williams shareholders have a 20% gain in the last six months, even with today's drop.

Sherwin-Williams cites "choppy" demand environment

The paint supplier reported adjusted earnings per share of $3.37, missing expectations for $3.55, according to FactSet Research. Net sales of $6.16 billion were slightly below the consensus estimate of $6.2 billion. Company CEO Heidi G. Petz cited "continued choppiness in the demand environment" for the disappointing results.

Yet even though investors may have been disappointed, the company did continue to exhibit growth. Diluted net income per share increased 7.8% year over year. And net-same-paint-store sales improved by 2.2%. The company also maintained its prior full-year earnings guidance, which would equate to an increase of 8.7% at the midpoint versus 2023.

Tough market already baked in

Petz also acknowledged that Sherwin-Williams presented a wider-than-normal range in full-year guidance due to many variables. Those include demand for repair and rebuilding the extensive damage caused by Hurricanes Helene and Milton.

And while every investor feels for those affected by the storm damage, it will be companies like Sherwin-Williams, Home Depot, and Lowe's that help with the long recovery process. That's not a great reason in itself for investors to buy the dip in the two home improvement leaders. But both companies had already lowered full-year sales guidance after second-quarter results.

That means investors already have reacted to the turbulent and "choppy" environment cited by Sherwin-Williams today. Both Home Depot and Lowe's are expected to report third-quarter results next month. Any downside surprise could certainly negatively impact those stocks even more.

Both have already pulled back from multiyear highs recently, though. If there are no big surprises, that could trigger another move higher for those stocks. Today's reaction to Sherwin-Williams' results would look like a buying opportunity in that case.

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Howard Smith has positions in Home Depot. The Motley Fool has positions in and recommends FactSet Research Systems and Home Depot. The Motley Fool recommends Lowe's Companies and Sherwin-Williams. The Motley Fool has a disclosure policy.