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Grainger Shares Up 23% in a Year: What's Working in Favor?

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Shares of W.W. Grainger, Inc. (GWW - Free Report) have outperformed the industry in the past year aided by rising e-commerce sales as well as gains from investments in growth initiatives and strengthening the customer base. The stock has gained 22.5% over the past year, outperforming the industry’s growth of 4.6%.

The company has a market cap of $18.76 billion. It has an expected long-term earnings per share growth rate of 9.6%.

Let’s delve deeper and analyze the reasons behind the company’s impressive price performance and find out if there is room for further appreciation:

Earnings & Sales Beat Estimates in Q2

Grainger reported second-quarter adjusted earnings per share (EPS) of $3.75, which beat the Zacks Consensus Estimate of $3.48. Revenues of $2.84 billion also surpassed the consensus mark of $2.75 billion.

Solid Estimate Revisions

The company’s earnings estimate for the current year is pegged at $15.83 per share and has moved 6.7% north over the past 60 days. Nine analysts have increased their earnings estimates for the ongoing year, while one has revised the estimates downward during the same time frame.

Driving Factors

The company accomplished the goal of remerchandising a record $1.2 billion of products in the United States and is on track to complete another $1.6 billion this year. Aided by its investments in growth initiatives, Grainger expanded the U.S maintenance, repair and operating (MRO) market by 150-200 basis points (bps) in 2019. So far this year, the company has consistently outpaced the U.S MRO market.

In the June-end quarter, Grainger outgrew the U.S MRO market by around 100 bps, highlighting the continued traction of its growth initiatives. Grainger will continue its efforts to strengthen relationships with both large- and mid-sized customers in a bid to improve sales-force effectiveness. It continues to re-engage lapsed customers and acquire new ones.

The company has witnessed a surge of COVID-19 pandemic-related product sales, such as personal protective equipment (PPE) and safety products, on higher customer demand. Grainger expects increased levels of safety and cleaning product sales to large healthcare, government and critical manufacturing customers in the near term. Further, the pandemic has provided a boost to its e-commerce sales. The company is focused on improving the end-to-end customer experience by making investments in its e-commerce and digital capabilities, and executing improvement initiatives within the supply chain. Furthermore, it has undertaken several cost-control measures in the wake of the uncertainty related to the pandemic.

Grainger’s Canada business is an attractive market and is anticipated to register double-digit operating margin growth over the next five years. The company has been focused on reducing its cost structure in the Canada operations to drive growth, and is aimed at making incremental investments in marketing and merchandising. It expects to return to growth in the business in the second half of 2020, and anticipates the business to be sustainable and profitable.

Zacks Rank & Stocks to Consider

Grainger currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector include Silgan Holdings, Inc. (SLGN - Free Report) , Astec Industries, Inc. (ASTE - Free Report) and SiteOne Landscape Supply, Inc. (SITE - Free Report) . While Silgan and Astec sport a Zacks Rank #1(Strong Buy), SiteOne carries a Zacks Rank of 2 (Buy), currently. You can see the complete list of today's Zacks #1 Rank stocks here.

Silgan has a projected earnings growth rate of 28.7% for 2020. The company’s shares have appreciated 32.9% over the past year.

Astec has an estimated earnings growth rate of 13.5% for the ongoing year. The company’s shares have rallied 68.5% in a year’s time.

SiteOne Landscape has an expected earnings growth rate of 15.4% for the current year. The stock has surged 61.6% over the past year.

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