Here's Why You Should Hold Grainger (GWW) in Your Portfolio Now
W.W. Grainger, Inc. GWW has been gaining from volume growth in the High Touch Solutions segment and customer growth in the Endless Assortment segment. This is impressive amid headwinds, such as product shortages and elevated costs. Gains from an improved product mix and price-control efforts are also aiding its results.
Let’s delve deeper and analyze the factors that make this stock worth holding on to at present.
Solid Q3 Results: Grainger reported earnings per share (EPS) of $9.43 in third-quarter 2022. The bottom line improved 14.1% year over year, aided by margin improvement in the High-Touch Solutions N.A. and Endless Assortment segments, and a strong operating performance. Grainger’s quarterly revenues rose 6.7% year over year to $4.2 billion.
Positive Earnings Surprise History: GWW has an average trailing four-quarter earnings surprise of 6.2%.
Upbeat Growth Projections: The Zacks Consensus Estimate for the company’s 2023 earnings has moved 1% upward over the past 60 days and is pegged at $36.37 per share. It suggests growth of 22.6% from the year-ago reported figure.
The consensus mark for fiscal 2024 earnings stands at $38.86 per share, indicating a year-over-year improvement of 6.9%. The Zacks Consensus Estimate has moved up 1% over the past 60 days.
Price Performance: In the past year, Grainger’s shares have gained 37.7% compared with the industry’s growth of 16.7%.
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Solid Segmental Results & Volume Growth: So far in 2023, the company reported strong results in both segments. The High-Touch Solutions North America (N.A.) segment gained from continued volume growth across all geographies and strong price realization. The gross margin was driven by an improved product mix, and sustained freight and supply-chain efficiencies.
Daily sales of this segment were up 8.7% in the third quarter from the prior-year quarter, following 9.9% growth in the second quarter and 14.5% growth in the first quarter of 2023. The segment will continue to benefit from pricing actions, and strength in commercial, transportation and heavy manufacturing.
The Endless Assortment segment’s daily sales for the third quarter were up 6% from the year-ago quarter, following 4.5% and 3.8% growth in the second and first quarters, respectively. This segment's net sales were aided by customer acquisition across the segment and repeat customer growth at MonotaRO.
Effective Strategies: The company’s margin will continue to gain traction from its improved product mix, lower freight costs, pricing actions and its ability to navigate supply-chain challenges. Grainger’s strategic initiatives and efforts to increase market share across the business are driving growth.
Grainger updated its earnings per share guidance to $36.00-$36.60 from the previously communicated $35.00-$36.75. The mid-point of the updated guidance indicates 22% growth from the 2022 reported figure. The company expects net sales between $16.4 billion and $16.6 billion for the current year. Total daily sales are expected to grow 8.5-9.5%.
Grainger’s initiatives and supply-chain advantages are likely to aid the company in meeting its guidance.
Focus on Growth: Grainger is investing in non-pandemic product inventory, and partnering with suppliers to mitigate supply-related challenges, inbound lead time challenges and any possible cost increases.
The company is also focused on improving the end-to-end customer experience by investing in its e-commerce and digital capabilities and executing improvement initiatives within its supply chain. It continues to develop online capabilities that promote a personalized, relevant and effortless experience for each customer through Grainger.com, eProcurement connections, 1 solutions and mobile applications.
Grainger’s Canada business is an attractive market and is expected to deliver double-digit operating margin growth over the next five years. The company has been focused on reducing its cost structure in its Canada operations to drive profitable growth. Grainger has been managing inventory effectively to drive profitability and is focused on making incremental investments in marketing and merchandising.
Near-Term Concerns
Grainger has lately been witnessing higher SG&A expenses. The increase was caused mainly by higher headcount to support growth, compensation costs and continued investments in marketing. SG&A expenses, along with higher operating costs, are likely to affect Grainger's margins in the upcoming quarters.
The company is witnessing product shortages and delays. Its overseas freight remains under pressure due to delays, port congestion and container challenges, and increasing fuel prices. These factors are hiking costs. The company expects these costs to remain elevated throughout the year.
Zacks Rank and Stocks to Consider
AGCO currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the Industrial Products sector are Brady BRC, Applied Industrial Technologies AIT and A. O. Smith Corporation AOS.
BRC currently sports a Zacks Rank #1 (Strong Buy), and AIT and AOS each carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Brady’s 2023 earnings per share is pegged at $4.00. The consensus estimate for 2023 earnings has moved 13% north in the past 60 days and suggests year-over-year growth of 9.9%. The company has a trailing four-quarter average earnings surprise of 7.2%. Shares of BRC have rallied 16.4% in a year.
Applied Industrial has an average trailing four-quarter earnings surprise of 15%. The Zacks Consensus Estimate for AIT’s 2023 earnings is pinned at $9.43 per share, which indicates year-over-year growth of 7.8%. Estimates have moved up 4% in the past 60 days. The company’s shares have gained 27.2% in a year.
The Zacks Consensus Estimate for A. O. Smith’s 2023 earnings is pegged at $3.77 per share. The consensus estimate for 2023 earnings has moved 5% north in the past 60 days and suggests year-over-year growth of 20.1%. The company has a trailing four-quarter average earnings surprise of 14%. AOS shares have gained 29.4% in a year.
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