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Grainger (GWW) Hits 52-Week Low: What's Dragging it Down?

Zacks Equity Research

Shares of W.W. Grainger, Inc. GWW touched a 52-week low of $173.50 on May 17, recovering to close the day at $174.77.

In fact, the provider of MRO solutions has underperformed the Zacks categorized Industrial Services sub-industry with respect to price performance in the past one year. While this Zacks Rank #5 (Strong Sell) stock lost around 21.2%, the industry recorded growth of 6.7% over the same time frame.

Grainger has a market cap of roughly $10.2 billion. Average volume of shares traded in the last three months is around 916K. The company missed the Zacks Consensus Estimate in two out of the trailing four quarters, with an average negative surprise of 2.01%. The stock has lost nearly 24.8% year to date. Let’s delve deeper to find out what’s leading to this bearish run.

W.W. Grainger, Inc. Price and Consensus


W.W. Grainger, Inc. Price and Consensus | W.W. Grainger, Inc. Quote

What’s Hurting Grainger?

Shares of Grainger have been falling and lost around 11.5% since it reported first-quarter 2017 results on Apr 18. Adjusted earnings per share declined 9% year over year, owing to the adverse effect of strategic pricing initiatives in the U.S. and also missed the Zacks Consensus Estimate.

Due to stronger-than-anticipated positive customer response to the U.S. strategic pricing actions, Grainger decided to accelerate its pricing actions this year instead of 2018. However, the decision requires a significant reduction to the company’s earnings per share guidance for 2017.

Thus, Grainger lowered its 2017 sales and earnings per share guidance. The company now guides sales growth of 1–4%, down from the earlier guidance of 2–6%. It also estimates earnings per share to be in the range of $10.00–$11.30 compared to the previous band of $11.30–$12.40.

With the acceleration of Grainger’s pricing actions from 2018 into third-quarter 2017, the company now projects U.S. price deflation of 5% for the year and a gross margin contraction of 210 basis points in 2017. The price acceleration is a headwind to 2017 and 2018 gross margins.

Further, Grainger’s Canada segment remains a concern. The segment continues to be challenged due to elevated expenses. In addition, the company’s oil and gas, and energy exposure in Canada is very high. Thus, fluctuation in oil prices will hamper the segment’s results.

Downward Estimate Revisions

For the full year, nine estimates have moved down over the past 60 days compared with no upward revisions. This has caused the consensus estimate to trend lower, moving down from earnings of $11.87 a share 60 days ago to its current level of $10.53.

Also, for the current quarter, Grainger has seen seven downward estimate revisions versus no upward revision, which dragged the consensus estimate down to earnings of $2.69 a share from $3.04 cents over the past 60 days.   

These above mentioned factors make us skeptical about the performance of Grainger in the near term.

Stock to Consider

Some better-ranked stocks worth considering in the same sector are AGCO Corporation AGCO, Altra Industrial Motion Corp. AIMC and Parker-Hannifin Corporation PH. All the three stocks boast a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AGCO has an average positive earnings surprise of 40.39% for the trailing four quarters. Altra Industrial Motion generated an average positive earnings surprise of 15.93% over the past four quarters, while Parker-Hannifin has an average positive earnings surprise of 14.94% for the last four quarters.

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