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Here's Why Grainger (GWW) Stock is a Solid Choice Right Now

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W.W. Grainger, Inc. (GWW - Free Report) is benefiting from the ongoing momentum in both the High Touch Solutions and the Endless Assortment segments, efforts to strengthen customer relationships and investments in growth initiatives.

Shares of the distributor of maintenance, repair and operating (MRO) products and services have gained roughly 20% over the past three months. Forecast-topping third-quarter 2021 results and an upbeat outlook for 2021 have been instrumental in the price appreciation.     

We are optimistic regarding the company’s prospects and believe that the time is right for you to add the stock to the portfolio as it looks promising and is poised to carry the momentum ahead.

Let’s delve deeper into the factors that make this Zacks Rank #2 (Buy) stock an attractive choice for investors right now.

An Outperformer

Zacks Investment ResearchImage Source: Zacks Investment Research

The stock has gained 22.4% so far this year, against the industry’s decline of 40.9%. It has outperformed the S&P 500’s rally of 21.8% over the same period.

Estimates Northbound

Over the past two months, the Zacks Consensus Estimate for Grainger for the current year has increased 2%. The consensus estimate for 2022 has been revised upward by 3% over the same time frame.

Solid Earnings Growth Projections

The company’s current-year earnings estimate is pegged at $19.60 per share, indicating year-over-year growth of 21%. The same for 2022 stands at $23.55, suggesting year-over-year improvement of 20%. The company has an estimated long-term earnings growth rate of 13%.

Return on Equity (ROE)

Grainger’s trailing 12-month ROE supports its growth potential. The company’s ROE of 45.3% is higher than the industry’s average ROE of 11.2%, highlighting that it is more efficient in utilizing shareholders’ funds.

Upbeat Guidance

In the High Touch Solutions North America segment, Grainger witnessed year-over-year revenue growth in third-quarter 2021, driven by strong recovery in core, non-pandemic product volume and higher pandemic product sales. The Endless Assortment segment delivered 14.9% year-over-year top-line growth, courtesy of strong customer acquisition at Zoro U.S. business.

Backed by this performance, Grainger projects net sales in 2021 between $12.7 billion and $13 billion. In 2020, the company had reported sales of $11.8 billion. It anticipates earnings per share in 2021 to be $19.00-$20.50, indicating year-over-year growth of 17.5% to 26.5%.

Growth Drivers in Place

The company continues to outpace the U.S. MRO market, highlighting sustained momentum of its growth initiatives and pandemic-related sales. It is focused on driving 300-400 basis points of outgrowth compared with the market by focusing on the strategic activities such as building advantaged MRO solutions, delivering unparalleled customer service, and offering differentiated sales and services. Grainger will continue its efforts to strengthen relationships with both large and mid-sized customers to improve sales force effectiveness.

The pandemic has provided a significant boost to Grainger’s e-commerce 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. It continues to develop online capabilities that promote a personalized, relevant, effortless experience for customers.

Meanwhile, Grainger is witnessing strong growth in non-pandemic products sales as the U.S. economy recovers. It anticipates non-pandemic sales growth to positively impact fourth-quarter results. The company is investing in non-pandemic products inventory and partnering with suppliers to mitigate supply related challenges, inbound lead time challenges and any possible cost increases. Grainger expects to benefit from price realization as well.

Other Stocks to Consider

Some other top-ranked stocks in the Industrial Products sector include SiteOne Landscape Supply (SITE - Free Report) , A. O. Smith Corporation (AOS - Free Report) and ScanSource, Inc. (SCSC - Free Report) . While SITE flaunts a Zacks #1 Rank (Strong Buy), AOS and SCSC carry a Zacks Rank #2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

SiteOne Landscape has an estimated earnings growth rate of around 77.2% for the current year. In the past 30 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 14%.

So far this year, the company’s shares have increased 48%. SiteOne Landscape has a trailing four-quarter earnings surprise of 130.9%, on average.

A. O. Smith has an expected earnings growth rate of around 35% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised upward by 1% in the past 30 days.

A. O. Smith’s shares have surged 50% so far this year. The company has a trailing four-quarter earnings surprise of 16.8%, on average.

ScanSource has a projected earnings growth rate of around 19% for 2021. The Zacks Consensus Estimate for current-year earnings has been revised upward by 1% in the past 30 days.

The company’s shares have appreciated 26% year to date. ScanSource has a trailing four-quarter earnings surprise of 34.6%, on average.