On Apr 9, we issued an updated research report on
W.W. Grainger, Inc. ( GWW Quick Quote GWW - Free Report) . The company is positioned well to gain on strong demand for certain products and e-commerce activities primarily triggered by the coronavirus pandemic. Further, its efforts to strengthen customer relationships in the United States will continue to boost its top-line performance. However, higher freight costs, operating costs and SG&A expenses are likely to dent its margins in the near term. Efforts to Grow Sales on Track
Grainger remains focused on its efforts to strengthen relationships with both large and mid-sized customers to improve sales force effectiveness. It continues to re-engage lapsed customers and acquire new ones. The company accomplished the goal of remerchandising a record $1.2 billion of products in the United States in 2019 and completed another $1.6 billion in 2020. Grainger outgrew the U.S maintenance, repair and operating (MRO) market by 150-200 basis points in 2019 and by 800 basis points in 2020, highlighting consistent traction of its growth initiatives and pandemic related sales.
The company has made enhancements to its search functionality and mobile app, which resulted in a enhanced user experience and improved its marketing capabilities in 2020. These efforts will continue to contribute to its top-line performance. Pandemic Induced Demand to Fuel Revenues
Grainger experienced a surge of COVID-19 pandemic related product sales such as personal protective equipment (PPE) and safety products due to higher customer demand. The company expects increased levels of safety and cleaning product sales to large healthcare, government and critical manufacturing customers in the near term. The pandemic has provided a boost to Grainger’s e-commerce sales as well. 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 its supply chain.
Solid Balance Sheet to Aid Growth
In 2020, Grainger generated operating cash flow of $1.1 billion, up 8% from 2019. The company resumed its share repurchase program in fourth-quarter 2020. Notably, the company hiked quarterly dividend by 6% in July — marking its 49th year of consecutive dividend increase. Through 2020, Grainger returned $939 million to shareholders via dividends and share repurchases. At the end of 2020, the company had cash balance of $585 million, while total debt to total capital ratio was at 0.53. Further, its times interest earned ratio is a healthy 11.2. For 2021, the company plans to invest between $225 million and $275 million in the business.
Few Headwinds Remain
The COVID-19 pandemic las led to a shift in demand toward lower-margin products. Further, higher operating costs in response to the COVID-19 pandemic and related activities are also likely to impact Grainger’s operating margins in the upcoming quarters. Further, the company anticipates SG&A expenses to come in higher in first-quarter 2021 due to incremental technology investments. The company is also facing higher freight costs. All these factors are likely to weigh on the first-quarter results.
The stock has gained 46.4% in the past year, compared with the
industry’s rally of 95.1%. Zacks Rank & Stocks to Consider
Grainger currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Industrial Products sector are Deere & Company ( DE Quick Quote DE - Free Report) , AGCO Corporation ( AGCO Quick Quote AGCO - Free Report) and Crown Holdings, Inc. ( CCK Quick Quote CCK - Free Report) . All of these stocks carry a Zacks Rank #2 (Buy) at present. You can see . the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here Deere has a projected earnings growth rate of 82.5% for fiscal 2021. Over the past year, the company’s shares have soared 170%. AGCO has an estimated earnings growth rate of 29.9% for the ongoing year. The company’s shares have surged 189% in the past year. Crown Holdings has an expected earnings growth rate of 16.2% for 2021. The stock has appreciated 72% in a year’s time. These Stocks Are Poised to Soar Past the Pandemic
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