We've been up for five straight weeks. Five straight weeks, for heaven's sakes. We are overbought. Many are concerned that the price-to-earnings multiple, after coming down sharply in early February, is now stretched again, selling currently at about 18x earnings.
It seems like an ideal time to take profits, to sit on the sidelines, or even to bet against the market, especially given that the last time we had a streak like this, back in November, it preceded a multi-week downturn.
And then you go to your websites and you see that Sherwin Williams (SHW) is paying $113 for competitor Valspar (VAL), in cash -- a huge premium over the $83 Friday closing price for the stock, a deal worth a total of around $9 billion.
The deal's a shocker. Valspar had been hurting of late. It reported a sales shortfall in February that sent the stock down 2%, and it had been losing Lowe's (LOW) business to none other than Sherwin Williams. The declining percentage of business to Lowe's clipped Valspar for $150 to $180 million. A stronger dollar had also been crimping earnings.
Now, out of nowhere, you get this combination that will make it so there is further reduction in the number of paint companies -- PPG Industries (PPG), Sherwin Williams and Masco's Behr (MAS) will be the only really competitive companies that consumer will be able to choose from at the Big Boxes and Benjamin Moore -- owned by Berkshire Hathaway (BRK.A; BRK.B) -- will remain a viable high-end competitor.
Sherwin Williams sees $280 million in synergies, and you can raise numbers for the company on the deal.
Now, the implications of this deal are manifold. First, you would think that Valspar would make a good short in a year where you expect tightening and the company's been losing share and doing worse than its rivals. But instead, it's a killer.
Second, you can tell the M&A business is now really picking up, and we are getting deals pretty much every week. We just a deal for Columbia Pipeline (CPGX) and a new deal for Starwood (HOT) last week. We know that Johnson Controls (JCI) and Tyco (TYC) are merging. Fresh Market (TFM) just got a bid. There's plenty of deals in the air.
Third, it does seem to me that with the Fed on hold, oil not collapsing, Europe doing a little better and even some not-as-downbeat numbers of late from China, we are in a moment where exogenous events can hurt us, but that you are still going to get deals like this one that will make it so if you own a company that might have a good niche in a consolidating business, you could do well.
In other words, it's so tough to bet against this sucker. It just keeps giving you reasons not to hate it. Valspar's the perfect example: a company whose stock was downgraded last month by a firm, Keybanc, stating that its profits have been challenged and that it has little upside.
I think the operative term after yesterday is had little upside. Because now the upside's glaring, and it is terrific.