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Here's Why You Should Hold On to Grainger (GWW) Stock For Now

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W.W. Grainger, Inc. (GWW - Free Report) is benefiting 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. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company has an estimated long-term earnings growth rate of 11.9%.

Positive Earnings Surprise History

Grainger has a trailing four-quarter average earnings surprise of 2.43%.

Solid Growth Projections

The company’s current-year earnings estimate is pegged at $18.45 per share, indicating year-over-year growth of 14 %. The same for 2022 is pinned at $21.01, suggesting a year-on-year increase of 13.8%.

Return on Equity (ROE)

Grainger’s trailing 12-month ROE supports its growth potential. The company’s ROE of 40.5% compares favorably with the industry’s average ROE of 14.9%, reflecting that it is more efficient in utilizing shareholders’ funds.

Growth Drivers in Place

The company accomplished the goal of remerchandising $1.6 billion of products in the United States in 2020.The company continues to outpace the U.S. maintenance, repair and operating (MRO) market, highlighting continued traction of its growth initiatives and pandemic-related sales. 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.

Grainger has witnessed a surge of COVID-19 pandemic-related product sales, such as personal protective equipment (PPE) and safety products on higher customer demand. Management 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 its 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 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 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. Apart from this, higher operating costs in response to the global health crisis might erode its operating margins in the upcoming quarters.

Share Price Performance

The stock has gained 33.1% over the past year compared with the industry’s growth of 56.5%.

Stocks to Consider

Some better-ranked stocks in the Industrial Products sector are Deere & Company (DE - Free Report) , AGCO Corporation (AGCO - Free Report) and Dover Corporation (DOV - Free Report) . While Deere flaunts a Zacks Rank of 1, AGCO Corporation and Dover carry a Zacks Rank #2, at present.

Deere & Company has a projected earnings growth rate of 38.8% for fiscal 2021. Over the past year, the company’s shares have appreciated 119.2%.

AGCO Corporation has an estimated earnings growth rate of 42.7% for the ongoing year. The company’s shares have surged 107.4% in the past year.

Dover has an expected earnings growth rate of 13.7% for 2021. The stock has gained 20.1% in a year’s time.

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In-Depth Zacks Research for the Tickers Above

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Deere & Company (DE) - free report >>

AGCO Corporation (AGCO) - free report >>

W.W. Grainger, Inc. (GWW) - free report >>

Dover Corporation (DOV) - free report >>