W.W. Grainger, Inc.

W.W. Grainger, Inc. (GWW - Analyst Report) is still showing no signs of a slowdown. The company, which distributes maintenance, repair, and operating (MRO) supplies, recently delivered it 6th consecutive positive earnings surprise on strong sales growth.

Management also raised its guidance for the remainder of the year, a move that prompted analysts to revise their estimates higher. This sent the stock to a Zacks #2 Rank (Buy).

In addition to strong growth, Grainger offers investors some income too with a dividend that yields 1.6%.

Third Quarter Results

Grainger delivered another strong quarter on October 18. Third quarter earnings per share rose 26% year-over-year to $2.51, crushing the Zacks Consensus Estimate of $2.34.

Sales increased 11% to $2.115 billion, ahead of the Zacks Consensus Estimate of $2.090 billion. Sales growth was driven by an 8% increase in volume. Sales were up 7% in the U.S. on a 7% increase in volume.

Grainger saw strong margin expansion in the quarter too. Gross profit expanded from 41.6% of net sales to 43.2% while the operating margin improved 110 basis points to 14.3% of net sales.

Raised Guidance

Following better than expected Q3 results, management raised its guidance for the remainder of 2011. The company now expects earnings per share between $8.80 and $9.00 on sales growth of 11-12%. This is up from the company's previous guidance of $8.40 to $8.70 per share on sales growth of 9-10%.

This prompted analysts to revise their estimates significantly higher, sending the stock to a Zacks #2 Rank (Buy). The Zacks Consensus Estimate for 2011 is now $8.91, which is within guidance. The represents a stellar 31% increase over 2010 EPS.

The 2012 consensus estimate also increased and currently stands at $9.77 per share, or 10% EPS growth.

Dividend

In addition to strong earnings growth, Grainger offers a dividend that yields a solid 1.6%. The company has been steadily raising its dividend over the last several years as it has consistently grown its revenue and EPS. Since 2000, for instance, Grainger has raised its dividend at a compound annual growth rate of 12.8%.

Valuation

Shares of GWW are up 19% since I last wrote about the stock on August 15. Back then the stock was beaten down along with the overall market over fears of another recession. Despite the run up in share price, the valuation picture still looks reasonable for GWW, as long as another recession isn't right around the corner.

Shares trade at 17.0x 12-month forward earnings, in-line with its 10-year median. It sports a PEG ratio of 1.2 based on a 5-year EPS growth rate 13.9%.

The Bottom Line

Grainger continues to deliver strong results in a sluggish economy. With strong growth projections, rising estimates, a solid 1.6% dividend yield and reasonable valuation, this Zacks #2 Rank (Buy) stock is still looking attractive.

Read the August 15 article here.

This Week's Growth & Income Zacks Rank Buy Stocks:

South Jersey Industries, Inc. (SJI) is a great choice for investors looking for some stability. The company offers solid growth prospects and pays a dividend that yields 2.7%. It has also been seeing an increase in earnings estimates over the last several months. SJI is a Zacks #2 Rank (Buy) stock. Read the full article.

Wal-Mart Stores, Inc. (WMT) offers solid earnings growth potential and is finally trading at a very reasonable price. The company has been generating some momentum too, with 3 consecutive months of positive same-store sales growth and 3 consecutive quarters of positive earnings surprises. It is a Zacks #2 Rank (Buy) stock. Read the full article.

The Home Depot (HD) continues to deliver better than expected results despite a weak housing market. Management recently raised its earnings guidance for the remainder of 2011, prompting analysts to revise their estimates higher too, and sending the stock to a Zacks #2 Rank (Buy). The company also pays a dividend that yields a solid 2.9%. Read the full article.

Lorillard, Inc. (LO) pays a dividend that yields a solid 4.4%. The company has been buying back tons of stock too, which should help drive EPS over the next few years. Analysts raised their earnings estimates after Lorillard's last EPS surprise, sending the stock to a Zacks #2 Rank (Buy). Read the full article.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.