Annual Dividend Rate
$4.68 Annual Dividend Yield2.06% Beta0.72 Market Capitalization$13.9 Billion 52-Week Range$176.85-$246.00 Price as of 6/9/2016$227.17 Sector: Industrials Sub-Industry: Trading Companies & Distributors Source: S&P
GWW BUSINESS DESCRIPTION
W.W. Grainger, Inc. distributes maintenance, repair, and operating (MRO) supplies; and other related products and services that are used by businesses and institutions.
STOCK PERFORMANCE (%)
3 Mo. 1 Yr. 3 Yr (Ann)
Price Change 3.75 -5.94 -4.48
GROWTH (%)
Last Qtr 12 Mo. 3 Yr CAGR
Revenues 2.74 0.21 3.57
Net Income -11.52 -6.46 1.40
EPS -2.94 0.00 5.00
RETURN ON EQUITY (%)
GWW Ind Avg S&P 500
Q1 2016 32.84 29.33 11.95 Q1 2015 25.40 22.14 14.20 Q1 2014 24.68 20.64 14.48 P/E COMPARISON 19.84 GWW 28.47 Ind Avg 24.45 S&P 500 EPS ANALYSIS¹ ($) 2016 Q 1 2. 98 2015 Q 4 2. 30 Q 3 2. 92 Q 2 3. 25 Q 1 3. 07 2014 Q 4 2. 14 Q 3 3. 30 Q 2 2. 94 Q 1 3. 07
NA = not available NM = not meaningful
1 Compustat fiscal year convention is used for all fundamental data items.
Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years
2015 2016 180 190 200 210 220 230 240 250 260 270 TARGET PRICE $262.38
TARGET PRICE $262.38TARGET PRICE $262.38
TARGET PRICE $262.38TARGET PRICE $262.38
Rating History BUY 0 3 5 8 Volume in Millions
COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History
RECOMMENDATION
We rate GRAINGER (W W) INC (GWW) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.
HIGHLIGHTS
GWW's revenue growth has slightly outpaced the industry average of 2.6%. Since the same quarter one year prior, revenues slightly increased by 2.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Trading Companies & Distributors industry and the overall market, GRAINGER (W W) INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
GRAINGER (W W) INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, GRAINGER (W W) INC increased its bottom line by earning $11.54 versus $11.45 in the prior year. This year, the market expects an improvement in earnings ($12.08 versus $11.54).
The debt-to-equity ratio is somewhat low, currently at 0.92, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.84 is somewhat weak and could be cause for future problems.
43.94% is the gross profit margin for GRAINGER (W W) INC which we consider to be strong. Regardless of GWW's high profit margin, it has managed to decrease from the same period last year. Despite the mixed
PEER GROUP ANALYSIS
REVENUE GROWTH AND EBITDA MARGIN*
EBITDA Margin (TTM) R ev en ue G ro w th (T TM ) -1 0% 40 % 100% 0% FA VO RA BLE UN FA VO RA BLE HDS HDSHDS HDS HDS URI URIURI URI URI WSO.B WSO.BWSO.B WSO.B WSO.B WSO WSOWSO WSO WSO MSM MSM MSM MSM MSM AL AL AL AL AL BECN BECNBECN BECN BECN WCC WCCWCC WCC WCC FAST FASTFAST FAST FAST GWW GWWGWW GWW GWW
Companies with higher EBITDA margins and revenue growth rates are outperforming companies with lower EBITDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $2.5 Billion and $13.9 Billion. Companies with NA or NM values do not appear.
*EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortization.
REVENUE GROWTH AND EARNINGS YIELD
Earnings Yield (TTM) R ev en ue G ro w th (T TM ) -1 0% 40 % 20% 2.5% FA VO RA BLE UN FA VO RA BLE AER AERAER AER AER HDS HDSHDS HDS HDS URI URI URI URI URI WSO.B WSO.BWSO.B WSO.B WSO.B WSO WSOWSO WSO WSO MSM MSMMSM MSM MSM AL AL AL ALAL BECN BECNBECN BECN BECN WCC WCCWCC WCC WCC FAST FASTFAST FAST FAST GWW GWWGWW GWW GWW
Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between -5.3% and 37.8%. Companies with NA or NM values do not appear.
INDUSTRY ANALYSIS
Trading companies and distributors provide industrial equipment and products to firms operating in manufacturing, construction, services, and government sectors. The industry moves a diverse range of products, including engines, boilers, metal-working equipment, elevators, fire and security equipment, generators, switchgears, power cables, turbines, process and discrete automation products, construction materials, and commercial refrigeration. Industrial machinery is the largest component of the equipment market with a share of nearly 60%. The US accounts for around 30% of the global industrial equipment market.
The industry is large, fragmented, and cyclical. A majority of the market is serviced by small retailers, dealerships, and distributors. Bargaining power is weak due to competition, low switching costs, and weak product differentiation. Companies face competition from manufacturers that sell directly to the market, retail outlets, small dealerships, catalog houses, large warehouse stores, and direct mail suppliers. Firms compete on variety of product offerings, customization of services, knowledge of customers, and price. Small distributors are specialists in niche segments where they can offer a broader selection. Some multi-regional competitors are part of larger companies and therefore have access to greater financial resources. WW Grainger (GWW), WESCO International (WCC), Fastenal (FAST), United Rentals (URI), BlueLinx Holdings (BXC), and MSC Industrial Direct (MSM) are major players.
The industry is consolidating because high administrative costs associated with order placements are forcing consumers to streamline their purchasing process by utilizing a limited number of suppliers. Limited capital availability, high operating costs, and poor sales volumes are pressuring small suppliers. There is a trend of sourcing from low-cost countries to maintain margins. The rising share of India and China in the world’s output, trade, and demand has opened a high-growth market for the US.
Industry performance is correlated to production growth, non-farm payrolls, and employment levels. The economic recovery may bolster sales. Macroeconomic indicators are likely to pick up throughout the slow economic recovery. The industry faces risks from skills shortage, exchange rate uncertainties, volatile energy prices, and pricing pressure. However, improved production in low-cost countries, lower fuel prices, and falling interest rates may provide some relief.
US stimulus packages provided a depreciation bonus to the beneficiary on newly purchased equipments, which boosted demand. With the bottoming in industrial production and commercial construction, activities of trading companies and distributors are likely to improve. Consolidation should help long-term viability as economies of scale are achieved by consolidated players. A recovery in emerging markets could boost industry prospects.
PEER GROUP: Trading Companies & Distributors
Recent Market Price/ Net Sales Net Income Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M)
GWW GRAINGER (W W) INC 227.17 13,931 19.84 10,040.26 744.69
AER AERCAP HOLDINGS NV 39.14 7,655 7.25 5,309.16 1,090.32
HDS HD SUPPLY HOLDINGS INC 36.29 7,284 5.50 7,388.00 1,472.00
URI UNITED RENTALS INC 74.11 6,559 12.46 5,812.00 562.00
WSO.B WATSCO INC 133.00 4,813 26.87 4,155.69 175.42
WSO WATSCO INC 136.16 4,813 27.51 4,155.69 175.42
MSM MSC INDUSTRIAL DIRECT 75.26 3,618 20.45 2,863.82 226.92
AL AIR LEASE CORP 29.14 2,996 9.71 1,222.49 326.92
BECN BEACON ROOFING SUPPLY INC 43.44 2,588 36.50 3,305.96 60.56
WCC WESCO INTL INC 59.96 2,530 14.70 7,478.12 199.71
FAST FASTENAL CO 45.35 13,101 25.48 3,902.55 514.98
COMPANY DESCRIPTION
W.W. Grainger, Inc. distributes maintenance, repair, and operating (MRO) supplies; and other related products and services that are used by businesses and institutions. The company offers material handling equipment, safety and security supplies, lighting and electrical products, power and hand tools, pumps and plumbing supplies, cleaning and maintenance supplies, building and home inspection supplies, vehicle and fleet components, and various other products. It also offers inventory management solutions; and distributes tools, fasteners, safety supplies, welding and shop equipment, and other products. The company offers its products through various branches, sales and service representatives, distribution centers, and catalogs, as well as through Websites. It serves small and medium-sized businesses, large corporations, government entities, and other institutions. The company also operates in the United States, Canada, Europe, Asia, and Latin America. W.W. Grainger, Inc. was founded in 1927 and is based in Lake Forest, Illinois. GRAINGER (W W) INC 100 Grainger Parkway Lake Forest, IL 60045 USA Phone: 847-535-1000 http://www.grainger.com STOCK-AT-A-GLANCE
Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of GWW shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and weaknesses. It is important to note, however, that these factors only tell part of the story. To gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stock’s valuation. Please refer to our Valuation section on page 5 for further information.
FACTOR SCORE
Growth
4.5
out of 5 stars Measures the growth of both the company's income statement and cash flow. On this factor, GWW has a growth score better than 80% of the stocks we rate.weak strong
Total Return
2.5
out of 5 stars Measures the historical price movement of the stock. The stock performance of this company has beaten 40% of the companies we cover.weak strong
Efficiency
5.0
out of 5 stars Measures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 90% of the companies we review.weak strong
Price volatility
4.0
out of 5 stars Measures the volatility of the company's stock price historically. The stock is less volatile than 70% of the stocks we monitor.weak strong
Solvency
3.5
out of 5 stars Measures the solvency of the company based on several ratios. The company is more solvent than 60% of the companies we analyze.weak strong
Income
3.5
out of 5 stars Measures dividend yield and payouts to shareholders. The company's dividend is higher than 60% of the companies we track.weak strong
THESTREET RATINGS RESEARCH METHODOLOGY
TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows.
Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks.
Consensus EPS Estimates² ($)
IBES consensus estimates are provided by Thomson Financial
3.20 Q2 FY16 12.08 E 2016(E) 13.01 E 2017(E) INCOME STATEMENT Q1 FY16 Q1 FY15
Net Sales ($mil) 2,506.54 2,439.66
EBITDA ($mil) 385.87 405.68
EBIT ($mil) 329.58 353.27
Net Income ($mil) 186.71 211.02
BALANCE SHEET
Q1 FY16 Q1 FY15
Cash & Equiv. ($mil) 279.91 243.43
Total Assets ($mil) 5,964.84 5,210.97
Total Debt ($mil) 2,092.33 628.02
Equity ($mil) 2,267.30 3,132.99
PROFITABILITY
Q1 FY16 Q1 FY15
Gross Profit Margin 43.94% 46.98%
EBITDA Margin 15.39% 16.62% Operating Margin 13.15% 14.48% Sales Turnover 1.68 1.92 Return on Assets 12.48% 15.27% Return on Equity 32.84% 25.40% DEBT Q1 FY16 Q1 FY15 Current Ratio 1.67 2.27 Debt/Capital 0.48 0.17 Interest Expense 13.73 1.64 Interest Coverage 24.01 215.93 SHARE DATA Q1 FY16 Q1 FY15
Shares outstanding (mil) 61 67
Div / share 1.17 1.08
EPS 2.98 3.07
Book value / share 36.97 46.82
Institutional Own % NA NA
Avg Daily Volume 557,205 849,188
2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates.
FINANCIAL ANALYSIS
GRAINGER (W W) INC's gross profit margin for the first quarter of its fiscal year 2016 has decreased when compared to the same period a year ago. Even though sales increased, the net income has decreased. GRAINGER (W W) INC has weak liquidity. Currently, the Quick Ratio is 0.84 which shows a lack of ability to cover short-term cash needs. The company's liquidity has decreased from the same period last year, indicating deteriorating cash flow.
At the same time, stockholders' equity ("net worth") has significantly decreased by 27.63% from the same quarter last year. Overall, the key liquidity measurements indicate that the company is in a position in which financial difficulties could develop in the future.
STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. To learn more visit www.TheStreetRatings.com.
RATINGS HISTORY
Our rating for GRAINGER (W W) INC has not changed since 12/12/2002. As of 6/9/2016, the stock was trading at a price of $227.17 which is 7.7% below its 52-week high of $246.00 and 28.5% above its 52-week low of $176.85.
2 Year Chart 2014 2015 $200 $225 $250 $275 B U Y : $ 26 7. 39
MOST RECENT RATINGS CHANGES
Date Price Action From To
6/9/14 $267.39 No Change Buy Buy
Price reflects the closing price as of the date listed, if available
RATINGS DEFINITIONS &
DISTRIBUTION OF THESTREET RATINGS (as of 6/9/2016)
38.56% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months.
31.18% Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss.
30.26% Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns.
TheStreet Ratings
14 Wall Street, 15th Floor
New York, NY 10005
www.thestreet.com
Research Contact: 212-321-5381 Sales Contact: 866-321-8726
VALUATION
BUY. This stock's P/E ratio indicates a discount compared to an average of 28.47 for the Trading Companies & Distributors industry and a discount compared to the S&P 500 average of 24.45. For additional comparison, its price-to-book ratio of 6.14 indicates a significant premium versus the S&P 500 average of 2.79 and a significant premium versus the industry average of 4.28. The price-to-sales ratio is below both the S&P 500 average and the industry average, indicating a discount. The valuation analysis reveals that, GRAINGER (W W) INC seems to be trading at a discount to investment alternatives within the industry.
1
2
3
4
5
Price/Earnings
premium discount
GWW 19.84 Peers 28.47
• Discount. A lower P/E ratio than its peers can signify a less expensive stock or lower growth expectations.
• GWW is trading at a significant discount to its peers.
1
2
3
4
5
Price/CashFlow
premium discount
GWW 14.08 Peers 13.81
• Average. The P/CF ratio, a stock’s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures.
• GWW is trading at a valuation on par to its peers.
1
2
3
4
5
Price/Projected Earnings
premium discount
GWW 17.47 Peers 18.36
• Average. An average price-to-projected earnings ratio can signify an industry neutral stock price and average future growth expectations.
• GWW is trading at a valuation on par with its peers.
1
2
3
4
5
Price to Earnings/Growth
premium discount
GWW 4.65 Peers 3.45
• Premium. The PEG ratio is the stock’s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples.
• GWW trades at a significant premium to its peers.
1
2
3
4
5
Price/Book
premium discount
GWW 6.14 Peers 4.28
• Premium. A higher price-to-book ratio makes a stock less attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet.
• GWW is trading at a significant premium to its peers.
1
2
3
4
5
Earnings Growth
lower higher
GWW 0.00 Peers 210.77
• Neutral. Higher earnings growth rates can lead to capital appreciation and justify higher
price-to-earnings ratios.
• The growth rate for GWW is not available.
1
2
3
4
5
Price/Sales
premium discount
GWW 1.39 Peers 1.48
• Average. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. • GWW is trading at a valuation on par with its
industry on this measurement.
1
2
3
4
5
Sales Growth
lower higher
GWW 0.21 Peers 3.15
• Lower. A sales growth rate that trails the industry implies that a company is losing market share. • GWW significantly trails its peers on the basis of
sales growth
DISCLAIMER:
The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSTAT® Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as other third-party data providers.
TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at http://www.thestreet.com/static/about/terms-of-use.html.