According to Global Industry Analysts Inc., the global coatings market is expected to reach $107 billion by the year 2017, if not sooner. One of the big beneficiaries of this growth is Minneapolis-based Valspar (NYSE:VAL), the sixth largest manufacturer of paints and coatings, something it's been doing since 1806. Valspar's continuing move into emerging markets such as Asia and elsewhere is going to pay big dividends for the company in the years to come, even with its stock being up over 25% year-to-date and roughly 141% in the past three years.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Valspar and Peers





Akzo Nobel (OTCBB:AKZOY)


PPG Industries (NYSE:PPG)


Sherwin-Williams (NYSE:SHW)


E.I. Dupont (NYSE:DD)


Consistent Management

Since 1973, Valspar's has had just four CEOs. Angus Wurtele, who took the helm after Valspar merged with Minnesota Paint, was CEO for 22 years until 1995 and a member of the board until February 2000. Wurtele still owns 6.1% of its stock. Current CEO Gary Hendrickson took over in June 2011, upon the retirement of former CEO Bill Mansfield. It's no wonder then that its stock's performance has been remarkably consistent over the past decade. Since 2002, it's had negative annual returns on just two occasions. In 2008, when the S&P 500 lost roughly 37%, it lost just 17.2%. It's currently working on its seventh year of double-digit returns in the past 11. It seems you can count on Valspar to be consistent in its approach to business.

SEE: Why Do Companies Care About Their Stock Prices?

Cash Flow

In the last five years (2007-2011), Valspar generated roughly $746 in free cash flow. It expects to generate almost double that amount in the next five. With approximately $450 million dedicated to capital expenditures and another $450 million for dividends, it expects to have $1.4 billion available for acquisitions, share repurchases and to a lesser extent, debt repayment. That's because it was able to sell $400 million in unsecured senior notes in January that don't mature until January 2022 and carry a coupon rate of 4.2%. This will allow it to retire $200 million of senior notes at about 5.63% interest, lowering its average borrowing cost per dollar. It finished the quarter with a debt-to-capital ratio of 51.2%, which is reasonable given the cash flow it will generate this year and beyond.

In the first five years (2007-2012), it spent $256 million more than its free cash flow on acquisitions and share repurchases. If it does the same in the next five, it will have about $398 million to spare. That certainly gives it some flexibility when it comes to acquisitions. In February, Hendrickson indicated Valspar wouldn't be bidding for Dupont's coatings business, which is expected to fetch as much as $3 billion. The deal would add a whack of debt to its balance sheet. Furthermore, even though it would double its size in terms of revenues, it would still be smaller than Sherwin-Williams, PPG Industries and Akzo Nobel. I think it's a wise move taking a pass. No sense mortgaging the farm if it's not going to move ahead in terms of market position. Cash isn't a bad thing to hang onto sometimes.

Growth Markets

In 2011, 27% of company revenue came from high-growth markets in Asia Pacific and another 5% from Latin America. Add in 14% from Europe and another 2% from Canada, and it generated approximately 48% of its overall revenue outside its stronghold in the U.S. Five years ago, it generated just around 37% internationally. A couple more acquisitions combined with some organic growth and that number could be as high as 60% in another five years. More important than the increased revenues are the improved margins these growth markets will deliver. For example, the first quarter of fiscal 2012 saw operating margins improve 270 basis points to 10.2%. While a big part of the increase is due to the success of its coatings segment, I think it's safe to assume that Valspar's international coatings business had a big part in that success.

SEE: A Look At Corporate Profit Margins

The Bottom Line

In February when it announced Q1 earnings, it raised 2012 full-year earnings guidance between $2.92 and $3.12 a share. Its stock might not be the cheapest of its peers, but it's certainly one of the most consistent, and that comes from thoughtful, stable management. For this reason alone, you should consider Valspar. Long-term, it won't let you down.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.
Related Articles
  1. Investing

    Build a Retirement Portfolio for a Different World

    When it comes to retirement rules of thumb, the financial industry is experiencing new guidelines and the new rules for navigating retirement.
  2. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  3. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  4. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  5. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  8. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  9. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  10. Home & Auto

    4 Areas to Consider Roofing Material Types

    Roofing your home is very important, that’s why you should choose a roof specifically designed to handle your area’s climate.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!