Grainger Shares Up 21% in a Year: What's Working in Its Favor?

Shares of W.W. Grainger, Inc. GWW have outperformed the industry in the past year, aided by an upbeat outlook, momentum in the United States and a solid Canadian business. Investments in digital capabilities and focus on strengthening customer base will also drive growth. The stock has gained 20.9% over the past year, outperforming the industry’s growth of 10.2%.

The company has a market cap of $17.8 billion. For the last three months, its average volume of shares traded has been approximately 322.8M. The company has an expected long-term earnings per share growth rate of 11.3%.

The company outpaced the Zacks Consensus Estimate in two of the trailing four quarters, the average positive earnings surprise being 1.94%.

Let’s delve deeper and analyze the reasons behind the company’s impressive price performance and find out if there is room for further appreciation:

Upbeat Outlook: For 2019, Grainger anticipates earnings per share in the band of $17.10-$18.70, reflecting year-over-year growth of 2-12%. Solid operating performance and favorable tax rates will likely propel bottom-line growth.

Positive Growth Projections: The Zacks Consensus Estimate for earnings is currently pegged at $17.46 for 2019, reflecting year-over-year growth of 4.55%. For 2020, the Zacks Consensus Estimate for earnings is pegged at $18.89, suggesting a year-over-year improvement of 8.20%.

Driving Factors

Grainger is focused on improving end-to-end customer experience by making investments in e-commerce and digital capabilities, and implementing improvement initiatives within its supply chain. Notably, the company intends to continue reducing its cost base. Further, the company anticipates to drive growth with the endless assortment model on MonotaRO and incremental investments in its Zoro businesses.

In the United States, business investment is likely to remain strong in 2019, supported by expanding global markets, lower capital costs and an improving regulatory environment. Grainger is well positioned to benefit from efforts to strengthen relationships with customers in the nation. Moreover, the company is poised to deliver its strongest SG&A leverage and continued operating-margin improvement.

Grainger has been focused on reducing its cost structure in Canada operations to fuel growth. Its Canada business has attractive prospects and is expected to register double-digit operating margin growth over the next five years. Furthermore, Grainger has been managing its inventory effectively to drive profitability, and is focused on making incremental investments in marketing and merchandising.

Zacks Rank & Stocks to Consider

Grainger currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector are Northwest Pipe Company NWPX, Tennant Company TNC and Reliance Steel & Aluminum Co. RS. All of these stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today's Zacks #1 Rank stocks here.

Northwest Pipe has an expected earnings growth rate of 15.8% for the current year. The stock has appreciated 43.8% over the past year.

Tennant has a projected earnings growth rate of 29.8% for 2019. The company’s shares have rallied 44.2% over the past year.

Reliance Steel & Aluminum has an estimated earnings growth rate of 7.4% for the ongoing year. In a year’s time, the company’s shares have gained 60.8%.

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