W.W. Grainger, Inc. GWW is gaining from forecast-beating second-quarter 2022 results. Growth in core, non-pandemic product volume and strong momentum in the High-Touch Solutions and Endless Assortment segments are aiding growth. 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 for now.
Earnings & Sales Surpass Q2 Estimates: Grainger reported impressive second-quarter 2022 results, with earnings and sales beating the respective Zacks Consensus Estimates and improving year over year.
Positive Earnings Surprise History: Grainger, a Zacks Rank #2 (Buy) company, has a trailing four-quarter earnings surprise of 7.95%, on average.
Positive Growth Expectations: The company’s earnings estimate for the current year is pegged at $27.84, suggesting year-over-year growth of 40.3%.
Upbeat View: Grainger projects current-year net sales between $15 billion and $15.2 billion, up from its prior guidance of $14.5-$14.9 billion. In 2021, the company reported sales of $13 billion. The company expects total daily sales growth between 14.5% and 16.5%, up from the prior range of 11-14%. Grainger raised its earnings per share guidance to the band of $27.25-$28.75 compared with the previous expectation of $25.00-$27.00. The updated guidance indicates year-over-year growth of 41% at the midpoint. GWW’s margin will continue to gain traction from improved pandemic product mix, pricing actions and its ability to navigate supply chain challenges. Also, its strategic initiatives and share gain across the business are driving growth.
Return on Equity: Grainger’s trailing 12-month ROE supports its growth potential. The company’s ROE of 57.6% compares favorably with the industry’s average ROE of 2.2%, reflecting that it efficiently utilizes shareholders’ funds.
Underpriced: Grainger’s price-to-earnings ratio shows that shares are underpriced at the current level, which seems attractive for investors. The company has a trailing P/E ratio of 23.0, below the industry average of 47.7.
Price Performance: Grainger’s shares have gained 36.3% in the past year against the industry’s fall of 36.4%.
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In the High Touch Solutions North America (N.A) segment, Grainger is witnessing revenue growth in nearly all the end markets. The upside can be attributed to double-digit revenue growth across all of the company’s North American regions and expansion in both large and midsize customers. The segment will continue to benefit from pricing actions and strength in commercial, transportation and heavy manufacturing. The Endless Assortment segment gains from strong customer acquisition at Zoro and MonotaRO business.
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. The company saw strong growth in non-pandemic product sales as the U.S. economy recovered. The company’s product mix is stabilizing as customers return to more normal operations.
Grainger’s High-Touch Solutions market continues to outpace the U.S. maintenance, repair and operating (MRO) market, supported by the continued traction of its growth initiatives. In the second quarter of 2022, this market exceeded the U.S. MRO market by 1,000 basis points (bps) from the prior year’s levels. For 2022, Grainger expects this market to grow between 15.4% and 15.8%, 300-400 bps above the estimated U.S. MRO market growth of 4-7%. Strategic activities such as building advantaged MRO solutions, delivering unparalleled customer service and offering differentiated sales and services will aid growth.
Grainger is focused on improving the end-to-end customer experience by investing in its e-commerce and digital capabilities and executing improvement initiatives within the supply chain. The company 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.
Stocks to Consider
Some better-ranked stocks from the Industrial Products sector are Greif Inc. GEF, Titan International TWI and MRC Global MRC. All of these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Greif has an estimated earnings growth rate of 37% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 17%.
Greif pulled off a trailing four-quarter earnings surprise of 22.9%, on average. GEF’s shares have risen 17% in the past year.
Titan International has an estimated earnings growth rate of 165% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 43%.
Titan International pulled off a trailing four-quarter earnings surprise of 56.4%, on average. TWI’s shares have soared 101% in a year.
MRC Global has an expected earnings growth rate of 259% for 2022. The Zacks Consensus Estimate for the current year’s earnings moved up 24% in the past 60 days.
MRC Global has a trailing four-quarter earnings surprise of 140.8%, on average. MRC’s shares have surged 35% in the past year.
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