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Grainger (GWW) Surged 35% in 3 Months: What’s Driving It?


Shares of W.W. Grainger Inc. GWW have surged around 35% in the last three months. The company has also outperformed its industry’s growth of roughly 24.1% as well as S&P 500's climb of 2.3%.

Grainger has a market capitalization of roughly $12.6 billion. Average volume of shares traded in the last three months is around 1.05 million. The company has topped the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive surprise of 4.23%.

Let’s take a look into the factors that are driving this Zacks Rank #3 (Hold) stock.

Driving Factors

Volume Growth and Successful Pricing Actions: Grainger's share price has benefited since third-quarter results on Oct 16, 2017. Third-quarter 2017 adjusted earnings per share of $2.90 dipped 5% on a year-over-year basis but beat the Zacks Consensus Estimate of $2.57 by 13%. In the recently reported quarter, the company witnessed robust volume growth of 7% in the U.S segment, driven by positive response to pricing actions as well as an improved demand environment. Grainger noted solid response, particularly from the mid-sized customers and also from digital marketing activities that began in mid-August. The single channel online businesses continued to deliver strong sales growth and improved profits.

Grainger’s pricing initiatives are driving solid growth. The company will continue pricing strategies in the United States through 2018. Further, it expects to cut down prices by 6.9% during this period. Moreover, the company anticipates the new pricing to help gain market share in the fragmented industrial distribution industry.

Upbeat Outlook: Customer spending in the United States continues to improve and the company anticipates the market to grow 2-3% in 2017. For the year, it now anticipates sales growth in the range of 1.5-2.5% and earnings per share to lie between $10.40 and $10.90. For full-year 2018, Grainger forecasts sales growth in the range of 3-7% and earnings per share between $10.60 and $11.80. The company also reiterated long-term operating margin target range of 12-13% in 2019. The company’s top priority involves accelerating growth with large and medium customers in the United States.

Canada Business Will Bounce Back: Grainger is in the midst of a substantial transformation in the Canadian business. The company continues to manage expenses resulting in improved performance in the business. It announced the closure of 59 branches and eliminated poorly performing assets. These actions will accelerate the path to double-digit profitability for the business and the company remains on track to break-even by the end of this year.

Other Drivers: Grainger’s single-channel online businesses continue to deliver sturdy sales growth and improved profits. The company is investing in critical areas, particularly in digital investments to ensure that its digital capabilities are up to date and poised for future growth. Revenues will benefit as digital marketing strategies boost demand.

W.W. Grainger, Inc. Price and Consensus

W.W. Grainger, Inc. Price and Consensus | W.W. Grainger, Inc. Quote

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 2017 and 2018 have moved up 1% in the past 30 days, reflecting analysts' bullish outlook.

Stocks to Consider

Some better-ranked stocks in the industrial product space include DMC Global Inc. BOOM, Ashtead Group plc ASHTY and Harsco Corporation HSC.

DMC Global has a positive average earnings surprise history of 19.10%. The stock has gained 27.1% in the past year and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ashtead Group has a positive average earnings surprise history of 3.04%. The stock has gained 34.1% in a year and carries a Zacks Rank #2 (Buy).

Harsco has an average earnings surprise history of 14.55% in the trailing four quarters. The stock has rallied 29% in a year. It carries a Zacks Rank #2.

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