We are maintaining our Outperform recommendation on The Valspar Corporation (VAL). Second quarter earnings topped the Zacks Consensus Estimate while sales missed. The company witnessed improved margins in the quarter, supported by pricing, better productivity and synergies from restructuring. Valspar raised its earnings forecast for 2012 based on volume gains and effective cost management.
The company expects sales to benefit from the diverse mix of businesses and growth in the fast growing coatings markets across Asia and Latin America. We believe the company has a strong pipeline of new products and significant opportunities for share gains in both its Paint and Coatings segments globally.
Moreover, Valspar is expected to benefit from its restructuring actions while maintaining its operational and pricing discipline. Our price target of $56 is based on 17.1x our fiscal 2012 earnings estimate, within the company’s historical range.
