Investing.com -- Jefferies downgraded Sherwin-Williams Co (NYSE:SHW) to "Hold" from "Buy" also cutting its price target by 10% to $380 amid concerns over a weakening housing market and broader economic uncertainty that could dampen demand for paint.

Indicators tracking economic activity suggest a slowdown in home sales and renovations in 2025. It also warned that U.S. policy changes could further pressure consumer spending, making current Wall Street forecasts for the company appear overly optimistic.

Sherwin-Williams risk-reward profile has deteriorated, Jefferies analysts wrote.

"Relative to the S&P 500, SherwinWilliams trades in line with the 10- year average, we believe increasing caution on demand prospects could lead to a relative discount,” analyst at Jefferies said.

Jefferies expects a modest growth environment in 2025, supported by easier year-over-year comparisons. However, it cautioned that a downturn in consumer confidence, already evident in recent economic data, could lead to a weaker housing market.

There is an increased risk of a significant drop in new home construction, which would directly impact demand for Sherwin-Williams' products.

While a potential series of interest rate cuts by the Federal Reserve could eventually support a housing recovery, Jefferies believes the market may not see relief unless the Fed delivers deeper cuts than currently expected.

Sherwin-Williams currently trades in line with its historical average relative to the S&P 500. However, Jefferies warned that increased caution around demand trends could cause the stock to trade at a discount compared to previous years.

The firm also noted that Sherwin-Williams is priced at a premium compared to its industry peers, including PPG Industries Inc (NYSE:PPG), Axalta Coating Systems Ltd (NYSE:AXTA), and Masco Corporation (NYSE:MAS).

The brokerage believes that, with economic risks becoming more balanced across sectors, Sherwin-Williams' valuation may need to adjust to reflect those changing dynamics.

Jefferies' analysis suggests a fair value for the stock between $337 and $375, depending on valuation models. The firm warned that blending in more cyclical acquisitions could temporarily weigh on Sherwin-Williams' return on invested capital, another factor that could pressure investor sentiment.

Despite the downgrade, Sherwin-Williams' long-term outlook remains tied to the broader U.S. construction industry, mergers and acquisitions, and industrial demand trends. However, with near-term risks rising, Jefferies sees limited upside for the stock at current levels.

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