Shares of W.W. Grainger Inc.
(GWW - Free Report
) have surged around 56% in the last year. The company has also outperformed its industry
’s growth of roughly 28% as well as S&P 500's rally of 6%.
The company has a market capitalization of roughly $17.5 billion. Average volume of shares traded in the last three months is around 727k. Grainger has outpaced the Zacks Consensus Estimate in the trailing four quarters, recording average positive surprise of 19.7%.
Drivers of the Upside
Strong Q3: Grainger’s third-quarter 2018 adjusted earnings per share of $4.19 improved 44% year over year. Further, the bottom line beat the Zacks Consensus Estimate of $3.96 by a margin of around 6%.
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 average positive earnings surprise of 19.7%.
Upbeat Outlook: Grainger’s 2018 earnings per share guidance is pegged at $15.05-$16.05, which reflects year-over-year growth of 36% at the mid-point. The company anticipates reporting earnings at the higher end of the guidance. The bottom line will also benefit from the lower tax rate. As a result of the U.S. tax reform and the tax benefit from stock-based compensation, Grainger expects an adjusted tax rate of 23 to 26% for the year. It also anticipates reporting a positive operating margin run rate in 2018.
Solid Growth Projections: The Zacks Consensus Estimate for the current fiscal is at $16.29, higher than the company’s guided range. The estimate reflects year-over-year growth of 42%. The Zacks Consensus Estimate for fiscal 2019 is at $17.92, reflecting year-over-year growth 10%. The company has a long-term estimated earnings growth rate of 12.4%.
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, represents around 50% of its total sales continues to log improvement. 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, and implementing continuous improvement initiatives within its supply chain. Notably, it intends to continue to reduce cost base.
Turnaround in the Canada Business: In its Canada business, the execution of Grainger’s turnaround continues to make progress and is on track. The company is focused on improving gross margin and reducing its cost structure in the Canada operations. The company expects to record a profitable run rate in 2018 for the business.
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 60 days, the Zacks Consensus Estimate for current-quarter earnings increased 1%. Estimates for 2018 and 2019 moved up 2% and 0.8%, respectively, over the same time frame.
The upward estimate revisions reflect optimism over prospects of this Zacks Rank #3 (Hold) stock.
Stocks to Consider
Enersys has a long-term earnings growth rate of 10%. The stock has rallied 29% in a year’s time.
Mobile Mini has a long-term earnings growth rate of 14%. The company’s shares have gained 21% during the past year.
Rexnord has a long-term earnings growth rate of 16.4%. Its shares have gained 21% over the past year.
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