Shares of W.W. Grainger Inc.
(GWW - Free Report
) have soared around 65% in the last year. The company has also outperformed its industry
’s growth of roughly 40% as well as S&P 500's gain of 13%.
The company has a market capitalization of roughly $17.2 billion. Average volume of shares traded in the last three months is around 741k. Grainger has outpaced the Zacks Consensus Estimate in the trailing four quarters, with an average positive surprise of 18.7%.
Drivers of the Upside
Strong Q1: Grainger’s first-quarter 2018 adjusted earnings per share of $4.18 rose around 45% year over year. Further, earnings beat the Zacks Consensus Estimate of $3.41 by 23%.
Upbeat Outlook: Grainger anticipates sales growth of 5-8% for 2018 and earnings per share between $14.30 and $15.30, reflecting EPS growth of 25-33% for the year. The guidance is backed by lower than previously anticipated price headwind and improved price mix along with better currency translation. COGS deflation was way more favorable in the first quarter and the company expects it to continue this year.
As a result of the U.S. tax reform, Grainger expects corporate tax rate at the mid-point to decline to 24.5% from 36% in 2018, which will benefit EPS by $2.15 in 2018.
Rising Business Investment: Grainger generates revenues from the distribution of MRO (Maintenance, Repair and Operating) supplies and products and related services. In the United States, business investment and exports are two major indicators of MRO spending. Business investment is likely to remain strong in 2018, supported by expanding global markets, lower capital costs and an improving regulatory environment. Further, exports and business non-residential investment are expected to improve.
Growth in E-Commerce: Grainger’s e-commerce sales, which represented around 53% of total sales in the first quarter, increased around 18% year over year. The increase can primarily be attributed to the launch of Grainger.com and other electronic purchasing platforms in the United States and across all single channel online businesses. The company is focused on improving the end-to-end customer experience by making investments in its e-commerce and digital capabilities along with executing continuous improvement initiatives within its supply chain. Notably, it intends to continue to reduce cost base.
Upward Estimate Revisions & Zacks Rank
The direction of estimate revisions serves as an important pointer when it comes to the price of a stock. Over the last 90 days, the Zacks Consensus Estimate for current-quarter earnings increased 16%. Estimates for 2018 and 2019 moved up 8% and 6%, respectively, over the same time frame.
The upward estimate revisions reflect optimism over prospects of this Zacks Rank #3 (Hold) stock.
Positive Earnings Surprise History
Grainger has an impressive earnings surprise history. The company’s earnings have surpassed the Zacks Consensus Estimate in the trailing four quarters, delivering an average positive earnings surprise of 18.7%.
Stocks to Consider
DMC Global has expected long-term growth rate of 20%. Its shares have soared 231% over the past year.
Chart Industries has expected long-term growth rate of 27%. Its shares have appreciated 67% in the past year.
Zebra Technologies has expected long-term growth rate of 5%. Its shares have gained 49% over the past year.
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