Here’s Why Grainger (GWW) is An Attractive Investment Bet – September 19, 2022

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WW Grainger, Inc. (GWW Free Report) is well poised to benefit from strong momentum in the High-Touch Solutions and Endless Assortment segments. Efforts to strengthen customer relationships and investments in growth initiatives will continue to support the top line. Benefits from price realization and cost-reduction actions will boost margins. These factors make the stock a solid investment option.

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 . You can see the complete list of today’s Zacks #1 Rank stocks here.

Solid Q2 Results: Grainger’s earnings and sales beat the Zacks Consensus Estimates in the second quarter of 2022 and also improved year over year. Results were driven by bullish demand in both the High-Touch Solutions NA and Endless Assortment segments.

Stellar Earnings Surprise History: Grainger’s bottom line surpassed the Zacks Consensus Estimate in all the trailing four quarters. GWW has a trailing four-quarter earnings surprise of 7.95%, on average.

Positive Expectations: Earnings estimate for the current year is pegged at $28.04, suggesting growth of 41.5% from the year-ago reading. The estimate for 2023 stands at $29.67, indicating growth of 5.7% from the year-earlier actuals.

Upbeat View: Grainger projects current-year net sales between $15 billion and $15.2 billion. In 2021, GWW had reported sales of $13 billion. Management expects total daily sales growth between 14.5% and 16.5%. Its earnings per share guidance for 2022 is in the band of $27.25-$28.75, indicating growth of 41% at the midpoint from the year-ago reported figure. GWW’s margin will continue to gain traction from an improved pandemic product mix and pricing actions. Also, its strategic initiatives are driving growth.

High Return on Equity: Grainger’s trailing 12-month ROE supports its potential. Its ROE of 57.6% compares favorably with the industry’s average ROE of 8.7%, reflecting that it efficiently utilizes its shareholders’ funds.

Underpriced a boon: Grainger’s price-to-earnings ratio shows that shares are underpriced at the current level, which is attractive for investors. GWW has a trailing P/E ratio of 18.01, below the industry average of 19.08.

Price Performance: Shares of Grainger have gained 19% in the past three months compared with the industry’s growth of 7.5%.


Image Source: Zacks Investment Research

Key Drivers

In the High Touch Solutions North America (NA) segment, Grainger is witnessing revenue growth in nearly all the end markets. The upside can be attributed to double-digit revenue growth across all the North American regions and expansion in both the large and midsize customer base. The segment will continue to benefit from pricing actions and strength in the commercial, transportation and heavy manufacturing end markets.

The Endless Assortment segment gains from a strong customer acquisition at the Zoro and MonotaRO businesses. In 2022, Zoro’s business is expected to grow in the high teens, reflecting the addition of 2 million Stock Keeping Units (SKU) and focus on acquiring and retaining high-value customers.

Grainger’s High-Touch Solutions market continues to outpace the US maintenance, repair and operating (MRO) market, supported by the constant traction of its growth initiatives. For the current year, GWW expects the High-Touch Solutions market to grow between 15.4% and 15.8%, up 300-400 basis points from the estimated US MRO market growth of 4-7%. Strategic activities, such as building advantageous MRO solutions, delivering unparalleled customer service, and offering differentiated sales and services will aid growth.

GWW saw strong growth in non-pandemic product sales as the US economy recovered. Grainger is investing in the non-pandemic product inventory and partnering with suppliers to mitigate supply-related challenges, inbound lead time challenges and possible cost increases.

Grainger is also focused on improving the end-to-end customer experience by investing in its e-commerce and digital capabilities, and executing initiatives to improve the supply chain. GGG continues to develop online capabilities that promote a personalized, relevant, effortless experience for each customer through Grainger.com, eProcurement connections, 1 solutions and mobile applications.

Other Stocks to Consider

Other top-ranked companies from the Industrial Products sector are discussed below:

RBC Bearings Incorporated (ROLL Free Report) currently sports a Zacks Rank of 1. ROLL delivered a trailing four-quarter earnings surprise of 9.4%, on average.

ROLL’s earnings estimates have increased 31.1% for fiscal 2023 (ending March 2023) in the past 60 days. Its shares have surged 30% in the past three months.

Valmont Industries, Inc. (VMI Free Report) currently has a Zacks Rank of 2. VMI’s earnings surprise in the last four quarters was 13.7%, on average.

In the past 60 days, Valmont’s earnings estimates have increased 4.3% for 2022. The stock has rallied 24.7% in the past three months.

Greif, Inc. (GEF Free Report) is currently Zacks #2 Ranked. GEF delivered a trailing four-quarter earnings surprise of 22.4%, on average.

GEF’s earnings estimates have increased 4.6% for fiscal 2022 (ending October 2022) in the past 60 days. Its shares have risen 10.2% in the past three months.

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