W.W. Grainger, Inc. ( GWW Quick Quote GWW - Free Report) is gaining from investments in growth initiatives, e-commerce boom and focus on strengthening the customer base. However, pandemic-related uncertainties and rising operating costs are likely to hurt the company. Grainger currently carries a Zacks Rank #3 (Hold). It has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3, offer the best investment opportunities for investors. The company has an estimated long-term earnings growth rate of 9.9%. Positive Earnings Surprise History
Grainger has a trailing four-quarter average earnings surprise of 2.35%.
Northbound Estimate Revisions
The company’s current-year earnings estimate moved 29% north over the past 60 days to $16.30 per share.
Return on Equity (ROE)
Grainger’s trailing 12-month ROE supports its growth potential. The company’s ROE of 41.3% compares favorably with the industry’s average ROE of 21.8%, reflecting that it is more efficient in utilizing shareholders’ funds.
Growth Drivers in Place
The company accomplished the goal of remerchandising a record $1.2 billion of products in the United States in 2019 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. Grainger will continue its efforts to strengthen relationships with both large- and mid-sized customers in order to improve sales-force effectiveness. It continues to re-engage lapsed customers and acquire the newer 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 significant boost to Grainger’s e-retail sales. The company is focused on improving the end-to-end customer experience by making investments in e-commerce and digital capabilities, and executing improvement initiatives within the supply chain. Grainger’s Canada business is an attractive market and is anticipated to deliver 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 fuel growth, and is focused on making incremental investments in marketing and merchandising. Nevertheless, there are a few factors that are likely to impede growth. The pandemic might affect Grainger’s businesses and operations in the days to come. Weakness in heavy manufacturing will depress the company’s sales as it contributes around 18% of the total sales. Apart from this, higher operating costs in response to the health crisis might erode its operating margins in the upcoming quarters. Share Price Performance
The stock has appreciated 21.9% over the past year compared with the
industry’s growth of 44.6%. Stocks to Consider
Better-ranked stocks in the Industrial Products sector include
AGCO Corporation ( AGCO Quick Quote AGCO - Free Report) , Avery Dennison Corporation ( AVY Quick Quote AVY - Free Report) , and Ball Corporation ( BLL Quick Quote BLL - Free Report) . While AGCO flaunts a Zacks Rank #1, Avery Dennison and Ball Corp carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here. AGCO has an expected earnings growth rate of 15.5% for 2020. The stock has appreciated 32.8% in one year’s time. Avery Dennison has an estimated earnings growth rate of 5% for the ongoing year. Shares of the company have gained 14.4% in the past year. Ball Corp has a projected earnings growth rate of 16.2% for the current year. Over the past year, the company’s shares have gained 42.1%. Biggest Tech Breakthrough in a Generation
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