Shares of W.W. Grainger Inc. (NYSE:GWW) have soared around 77% in the last year. The company has also outperformed its industry’s growth of roughly 37% as well as S&P 500's gain of 11%.
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W.W. Grainger, Inc. (GWW): Free Stock Analysis Report
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Zacks Investment Research
Grainger has a market capitalization of roughly $17.2 billion. Average volume of shares traded in the last three months is around 813k. The company has topped the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive surprise of 18.7%.
Let’s take a look into the factors that are driving this Zacks Rank #1 (Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.
Driving Factors
Strong Q1: Grainger’s first-quarter 2018 adjusted earnings per share of $4.18 rose around 45% year over year. Further, earnings beat the Zacks Consensus Estimate of $3.41 by 23%.
Upbeat Outlook: Grainger raised sales and earnings per share guidance for 2018. The company now anticipates sales growth of 5-8% compared with the prior guidance of 3-7%. Further, the outlook for earnings per share has been lifted to $14.30-$15.30 from $12.95-$14.15. It also expects operating earnings growth of 6-14% and EPS growth of 25-33% for the year.
The guidance is backed by lower price headwind than previously expected and improved price mix along with better currency translation. COGS deflation was way more favorable in the first quarter and the company expects it to continue this year. Grainger expects price mix to improve and 50 basis points of COGS deflation for the year, driven by its internal product cost initiatives.
As a result of the U.S. tax reform, Grainger expects its corporate tax rate at the mid-point to drop to 24.5% from 36% in 2018, which will benefit EPS by $2.15 in 2018.
Rising Business Investment: Grainger generates revenues from the distribution of MRO (Maintenance, Repair and Overhaul) 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 nonresidential investment are expected to improve.
Growth in E-Commerce: Grainger’s e-commerce sales, which represent around 53% of total sales in the first quarter, increased around 18% year over year. The increase was primarily buoyed by 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 executing continuous improvement initiatives within its supply chain. Notably, it intends to continue to reduce cost base.
Estimates Moving North: Positive estimate revisions reflect optimism in the company's potential, as earnings growth is often an indication of robust prospects (and stock price gains) ahead. Estimates for Grainger for both 2018 and 2019 have moved up 7% and 4% respectively, in the past 30 days, reflecting analysts' bullish outlook.
Stocks to Consider
Some other top-ranked stocks in the sector include Caterpillar Inc. (NYSE:CAT) , Terex Corporation (NYSE:TEX) and H&E Equipment Services, Inc. (NASDAQ:HEES) . All these stocks carry the same rank as Grainger.
Caterpillar has expected long-term growth rate of 13.3%. Its shares have appreciated 53% over the past year.
Terex has expected long-term growth rate of 20.2%. Its shares have gone up 32% in a year’s time.
H&E Equipment Services has expected long-term growth rate of 17.4%. Its shares have surged 111% over the past year.
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Terex Corporation (TEX): Free Stock Analysis Report
Caterpillar Inc. (CAT): Free Stock Analysis Report
H&E Equipment Services, Inc. (HEES): Free Stock Analysis Report
W.W. Grainger, Inc. (GWW): Free Stock Analysis Report
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Zacks Investment Research
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