Grainger (GWW) Stock Continues to Climb Higher as Profits Keep Rolling In

Stock (Symbol)

W.W. Grainger (GWW)

Stock Price


Industrials & Energy
Data is as of
June 7, 2023
Expected to Report
July 27
Company Description
W.W. Grainger, Inc. is a business-to-business distributor of maintenance, repair, and operating (MRO) products and services with operations primarily in North America, Japan, and the United Kingdom.

The Company operates through two segments: High-Touch Solutions N.A. and Endless Assortment.

The Company’s High-Touch Solutions N.A. segment provides value-added MRO solutions. This segment includes the Company’s businesses in the United States (U.S.), Canada, Mexico, and Puerto Rico.

The Company’s Endless Assortment segment provides a streamlined and transparent online platform with one-stop shopping for products. The Endless Assortment segment includes the Company’s Zoro Tools, Inc. (Zoro) and MonotaRO Co., Ltd. (MonotaRO) online channels which operate predominately in North America, Japan, and the United Kingdom.

The Company’s product offering includes safety and security, material handling and storage, pumps and plumbing equipment, cleaning, and maintenance, metalworking and hand tools. Source: Refinitiv

Sharek’s Take
David Sharek

Grainger (GWW) grew profits an impressive 36% last quarter with borad-based strength across most maufacturing sectors. Sales increased a solid 12% during the quarter. Profit margins increased to 39.9% from 37.9% a year ago. The company’s growth was boosted by a strong manufacturing sector including contractors and government customers with lighter demand with companies dealing with consumers. The supply chain contineus to improve, and product avaiavility improved as supplier lead times were reduced. GWW’s service metrics had a sharp improvement, to pre-pandemic levels. In the earnings call, management said the return to a more normal supply chain is great news for Grainger’s customers. 

W.W. Grainger is the leading supplier of maintenance supplies in North America, Japan and the United Kingdom. The company stocks more than 1.5 million products from more than 4,500 suppliers. Customers include manufacturing plants, retail distribution centers, hospitals and governments. The company has adapted its strategy the last several years to implement new technology and data analytics. Small businesses often use GWW’s array of websites when placing orders. Bigger customers utilize the company’s KeepStock inventory management system, which consists of storage bins and vending machines on the customer’s location that store products, as well as track and order parts through its software. Enterprise customers are often connected to GWW’s eProcurement (ePRO), an electronic transaction between the customer and GWW. Top categories during 2022 include (Source: 2023 Company Fact Sheet):

  • Safety & Security: 17% of sales
  • Material Handling: 11%
  • Pumps, Plumbing and Test Equipment: 9%
  • Cleaning & Maintenance: 8%
  • Metalworking: 7%
  • Electrical: 5%
  • Hand Tools: 5%
  • HVAC: 4%
  • Power Tools: 4%
  • Speciality Brans: 4%

Grainger has two operating segments:

  • High-Touch Solutions (80% of 2022 revenue): This typically serves larger customers via sales and service representatives, as well as the company’s website. It offers more than 1.5 million products stocked in distribution centers and branches. Order fulfillment is shipped direct to the customer (72%), delivered through KeepStock (16%), or picked up at the branch (12%) as of 2021. Orders are placed via:
    • Grainger website (33% of 2021 orders)
    • ePRO (27% of orders)
    • Phone (18% of orders)
    • KeepStock (16% of orders)
    • Branch (6% of orders)
  • Endless Assortment (18% of 2022 revenue): This accommodates small customers through Zoro website (10 million products), and Japanese customers via the MonotaroRO website (20 million products):
    • Zoro.com is an e-commerce subsidiary of GWW, which was launched in 2011 with the primary goal of offering the needed products by customers and ship them as fast and efficient as possible. It sells supplies, equipment, and tools to small businesses around the country.
    • MonotaRO, on the other hand, was established in 2000 in Japan as a joint venture company between GWW and Sumitomo Corp. It sells maintenance, repair, and operating products to small to mid-sized businesses.

GWW is a safe Blue Chip stock that is part of S&P’s Dividend Aristocrats, as it has increased its dividend every year since 1971. In April 2022, management raised the dividend for the 51st consecutive year. Management buys back stock, purchases other supply stores, and invests in technology to spur Internet sales. I think of this company as a 12% to 15% grower. Analyst give the stock an overly-generous Estimated Long-Term Growth Rate of 28%. The dividend yield is 1%. In 2022, the company generated $1.33 billion in operating cash flow and returned $602 million in share repurchases and $347 million in cash dividends to shareholders. GWW is part the Conservative Growth Portfolio

One Year Chart
These charts & tables were done last week with the stock at $698. Right after we completed these the stock broke out to an All-Time high and is now $726. I like this chart pattern with the nice long base. And the P/E is reasonable too.

The Estimated Long-Term Growth Rate (Est. LTG) is 28%, which I find too high. Notice profit growth is expected to slow two qtrs from now (but GWW might keep beating the street).

Qtrly profit growth has been excellent the prior six qtrs.

Earnings Table
Last qtr, Grainger reported 36% profit growth and beat expectations of 20% growth. Revenue increased 12%, year-over-year versus analyst estimates of 12%. Gross profit margin improved to 39.9%, from 37.9% last year driven by strong revenue in the company’s two segments. Here are the results for each segment during the period:

  • High-Touch Solutions revenue +15%
    • Growth was primarily driven by strong price realization and sustained increases in volume. 
    • Customer demand remained strong despite softening in certain areas. In the US, most of the manufacturing sector continued to grow while retail and warehousing slowed down. Revenue also grew 11% in Canada.
    • Segment outpaced the U.S. MRO market by 7.5%.
  • Endless Assortment revenue +4%
    • Revenues were driven by growth in small businesses which brought new and repeat customers to Zoro U.S. The platform grew by 14%.
    • Revenues were also supported by growth in enterprises which brought new and existing customers to MonotaRO, partially offset by the winter weather and a slower return to work after the holidays. The platform grew by 12%.

Annual Profit Estimates grew this qtr. Management now expects profits to gow 20% this year with the help of these increased gross margins. For 2023, management expects revenue to grow 7% to 11%.

Quarterly profit Estimates are 26%, 8%, 15%, and 1%. Notice growth is expected to slow. Analysts think Grainger revenue will grow 9% next quarter.

Fair Value

This stock has a P/E of just 19. That’s very reasonable. The 1% dividend is an added boost.

My Fair Value on this stock is a P/E of 24, which suggests $860 a share for 2023 and $924 for 2024.

Bottom Line
Grainger (GWW) is a quality stock that many investors are unaware of. It‘s a core buy-and-hold stock that’s increased its dividend for more than 50 straight years. This is a perfect selection for retirees. During the latter years of the Obama era (2015-2017) slow economic growth and a strong dollar zapped GWW’s profit growth.

Grainger has been firing on all cylinders, and the P/E is reasonable so I think the stock can continue higher. In fact, the stock has already started to move higher.

GWW ranks 4th in the Conservative Growth Portfolio Power Rankings.

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