W.W. Grainger, Inc.
(GWW - Free Report
) looks promising at the moment on the back of continuous investments in e-commerce and digital capabilities, focus on strengthening large and mid-sized customer base, and improving cost structure. We are optimistic 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 a lucrative investment option.
What's Working in Favor of Grainger?
Solid Rank, Score: Grainger currently has a Zacks Rank #2 (Buy) and a VGM Score
of B. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best investment opportunities for investors. Consequently, the company appears to be a compelling investment proposition at the moment.
Grainger's shares surged 96% in the past year, outperforming the industry
's growth of 46%.
Strong Q2, Upbeat Guidance: Grainger’s second-quarter 2018 adjusted earnings per share of $4.37 improved 9% year over year. Earnings also beat the Zacks Consensus Estimate of $3.78 by 16%. The performance was aided by higher sales, operating expense leverage, lower tax rate and share count.
Backed by the last reported quarter’s performance, Grainger raised 2018 sales and earnings per share guidance. The company now expects sales to be up 5.5-8.5% compared with the prior guidance of 5-8%. Further, the outlook for earnings per share is now $15.05-$16.05, from the prior range of $14.30-$15.30. The company expects volume growth to outpace the market by 300-plus basis points this year. Operating margin is anticipated to range between 11.5% and 11.9%, 50-90 basis points higher than the prior year.
Positive Earnings Surprise History: The company has surpassed the Zacks Consensus Estimate in the trailing four quarters, delivering an average positive earnings surprise of 21.5%.
Positive Estimate Revisions, Growth Projections: The Zacks Consensus for fiscal 2018 and fiscal 2019 has gone up 1.0% and 0.6%, respectively, over the past 60 days. The Zacks Consensus Estimate for earnings is currently pegged at $16.05 for fiscal 2018 which reflects year-over-year growth of 40%. For fiscal 2019, the Zacks Consensus Estimate for earnings is pegged at $17.85, year-over-year growth of 11%.
Grainger has long-term expected earnings per share growth of 12.5%.
Superior Return on Assets (ROA): Grainger currently has a ROA of 14.0%, while the industry's ROA is 9.5%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.
Growth Drivers in Place: The company is focused on improving the end-to-end customer experience backed by investments in e-commerce and digital capabilities along with implementing continuous improvement initiatives within its supply chain. Sales from e-commerce accounted for around 51% of total sales in 2017.
Grainger is focused on its efforts to strengthen relationships with both large and mid-sized customers. The company has been witnessing increasing volumes across all customer groups lately.
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.
Other Stocks to Consider
Some top-ranked stocks in the same sector include Atkore International Group Inc. (ATKR - Free Report
) , Donaldson Company, Inc. (DCI - Free Report
) and Lawson Products, Inc. (LAWS - Free Report
) . All three stocks sport a Zacks Rank #1.
Atkore has an expected long-term growth rate of 10%. Its shares have gained 35% over the past year.
Donaldson Company has an estimated long-term growth rate of 11.5%. Its shares have been up 25% in a year’s time.
Lawson Products has a projected long-term growth rate of 17.5%. Its shares have rallied 34% over the past year.
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