Back to top

Here's Why You Should Hold on to Grainger Stock for Now

Read MoreHide Full Article

W.W. Grainger, Inc. (GWW - Free Report) has an average earnings surprise history of 4.23% in the trailing four quarters. Notably, the company has been witnessing revisions in earnings estimates for this year and the next. It is expected to perform well on the back of pricing initiatives, focus on managing expenses and improving customer spending in the United States.

Currently, the leading North American distributor of material handling equipment, carries a Zacks Rank #3 (Hold). Here's why investors should hold on to the stock at the moment.

Earnings Estimate Revisions

Positive estimate revisions reflect optimism in the company’s potential, as earnings growth is often an indication of robust prospects (and stock price gains) ahead. Estimates for Grainger have moved up in the past 60 days, reflecting analysts’ bullish outlook. For 2017, 12 of the 13 available estimates have moved up with no downward revision. For 2018, 11 of the 13 available estimates have been revised upward, with no downward revision. The earnings estimate has moved north by 3% for 2017 and 2% for 2018.

Price Performance

In the past six months, the company outperformed the industry. The stock has gained 33.7% while the industry rose 21.2%.

Return on Assets (ROA)

Grainger currently has a ROA of 11.2% while the industry's ROA is 8.7%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.

Value Growth Momentum (VGM) Score

Grainger currently has a VGM Score of A. Here V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of these three scores (Value - B, Growth - A, Momentum - B). Such a score allows you to eliminate the negative aspects of stocks and select winners. The VGM Score of A along with some other key metrics makes the company a solid choice for investors.

Growth Drivers in Place

Grainger’s solid growth can be attributed to pricing initiatives. The company will continue pricing strategies in the United States through 2018 and expects to cut down prices by 6.9% in the period. It anticipates the new pricing to allow it to gain market share in the fragmented industrial distribution industry.

The company continues to be diligent in managing expenses and improving cost structure. Further, it is taking efforts to bring Canadian business back to profitability. Meanwhile, the single channel online model continues to drive solid growth and margin expansion. Grainger is investing in critical areas, particularly in digital investments to ensure that its digital capabilities are up to date and poised for future growth. Revenues will benefit as digital marketing strategies improve and boost demand.

Customer spending in the United States continues to improve and the company anticipates the U.S. market to grow 2-3% for the year. Backed by the recent volume trends, Grainger projects annual volume growth in the range of 6-8% for 2018 and 2019.

Bottom Line

Investors might want to hold on to the stock at present as it has ample positive prospects of outperforming peers in the near future.

Stocks to Consider

Some better-ranked stocks in the industrial product space include DMC Global Inc. (BOOM - Free Report) , Ashtead Group plc (ASHTY - Free Report) and Harsco Corporation (HSC - Free Report) .

DMC Global has a positive average earnings surprise history of 19.10% in the trailing four quarters. The stock has gained 32.3% in the past year. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ashtead Group has a positive average earnings surprise history of 3.04%. The stock has a Zacks Rank #2 (Buy) and gained 27.6% in a year.

Harsco has an average earnings surprise history of 14.55% in the trailing four quarters. The stock has gained 18% in a year. It carries a Zacks Rank #2.

Wall Street’s Next Amazon

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.

Click for details >>

More from Zacks Analyst Blog

You May Like