W.W. Grainger, Inc. GWW
looks promising at the moment on the back of its pricing initiatives, digital marketing strategies, focus on improving cost structure and efforts to bring its Canadian business back to profitability. We are positive on the company’s prospects and believe this is the right time to add the stock to your portfolio, as it is poised to carry the bullish momentum ahead.
Let's delve deeper and analyze the factors that make this leading broad line supplier of facilities maintenance products an attractive investment option.
What's Working in Favor of Grainger?
Solid Rank, Score:
Grainger currently sports a Zacks Rank #1 (Strong Buy) and a
of B. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 or #2 (Buy), offer the best investment opportunities for investors. Consequently, the company appears to be a compelling investment proposition at the moment.
An Outperformer: Grainger's shares climbed 70% in the past year, outperforming the industry's growth of 39%.
Strong Q4, Upbeat Guidance: Grainger’s fourth-quarter 2017 adjusted earnings per share of $2.94 came in higher than the prior-year figure of $2.45 by 20%. Earnings also beat the Zacks Consensus Estimate of $2.18. The company witnessed strong volumes in its U.S. business, driven by strategic pricing initiatives as well as an improving demand environment.
Grainger raised fiscal 2018 earnings per share guidance range to $12.95-$14.15 from the previous range of $10.60-$11.80. The increase in the guidance factors in a contribution of 50 cents from the better-than-expected fiscal 2017 operating performance, benefit from lower corporate tax rate under U.S. tax legislation along with incremental share buybacks funded by the benefits of the tax legislation. The company anticipates higher sales and earnings as well as a higher operating margin in fiscal 2018. The mid-point of the EPS guidance reflects an 18% growth compared with prior year. The company maintains sales growth guidance in the range of 3-7% for the full year.
Positive Earnings Surprise History: The company has surpassed the Zacks Consensus Estimate in three of the trailing four quarters, delivering an average positive earnings surprise of 11.99%.
Positive Estimate Revisions, Growth Projections: The Zacks Consensus for fiscal 2018 and fiscal 2019 has gone up 3.0% and 0.4%, respectively, over the past 30 days. The Zacks Consensus Estimate for earnings is currently pegged at $13.81 for fiscal 2018 which reflects year-over-year growth of 20.5%. For fiscal 2019, the Zacks Consensus Estimate for earnings is pegged at $15.77, year-over-year growth of 14.2%.
Grainger has a long-term expected earnings per share growth of 9.7%.
Superior Return on Assets (ROA): Grainger currently has a ROA of 11.5%, while the industry's ROA is 8.6%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.
Growth Drivers in Place: Grainger’s pricing initiatives have been driving growth. The company will continue its pricing strategies in the United States through 2018. It expects solid volume growth due to these actions and an improved demand environment.
It announced a plan to take $150-$210 million of cost out of the Canada business in fiscal 2017. The company continues to make strong progress on that plan. In Canada, Grainger laid the foundation for a complete business model reset in late 2017. The company remains focused on improving services to customers and consistent direct-to-customer shipping. Further, it is focusing on Canada’s cost structure through branch reductions and creation of North American centers of excellence.
Other Stocks to Consider
Some other top-ranked stocks in the same sector include Komatsu Ltd.
, H&E Equipment Services, Inc. (
HEES Quick Quote HEES - Free Report
) and Caterpillar Inc.
. While Komatsu sports a Zacks Rank #1, H&E Equipment Services and Caterpillar carry a Zacks Rank #2.
Komatsu has a long-term earnings growth rate of 27%. The stock has gained 40% in a year’s time.
H&E Equipment Services has a long-term earnings growth rate of 18.6%. Its shares have soared 82%, over the past year.
Caterpillar has a long-term earnings growth rate of 10.3%. The company’s shares have rallied 58% in last year.
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