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Grainger (GWW) Stock Surges 50% YTD: Can the Rally Continue?

Shares of W.W. Grainger Inc. GWW have surged around 50% year to date. The company has also outperformed its industry’s growth of roughly 25% as well as S&P 500's gain of 9%.
The company has a market capitalization of roughly $19.9 billion. Average volume of shares traded in the last three months is around 653k. The company has expected long-term earnings per share growth of 12.5%.
Let's take a look at the factors that are aiding the stock.
Strong Q2: Grainger’s second-quarter 2018 adjusted earnings per share of $4.37 improved 9% year over year and beat the Zacks Consensus Estimate by a margin of 16%. The performance can be attributed to higher sales, operating expense leverage, lower tax rate and share count.
Upbeat Outlook: Grainger expects sales to be up 5.5-8.5% year over year in fiscal 2018. The company anticipates volume growth to outpace the market by 300-plus basis points this year. The guidance for earnings per share is at $15.05-$16.05. Operating margin is expected to range between 11.5% and 11.9%, which is 50 to 90 basis points higher than the prior year. Grainger expects price mix to improve and 50 basis points of COGS deflation for the year, driven by its internal product cost initiatives.
The Zacks Consensus Estimate for earnings for fiscal 2018 is at $16.03, reflecting year-over-year growth of 40%.
Rising Business Investment: Grainger generates revenues from the distribution of MRO (Maintenance, Repair and Operating) supplies and products and related services. In the United States, business investment and exports are two major indicators of MRO spending. Business investment is likely to remain strong in 2018, backed by expanding global markets, lower capital costs and an improving regulatory environment. Further, exports and business non-residential investment are expected to improve.
Growth in E-Commerce: Grainger’s e-commerce sales, which represented around 51% of total sales 2017, were up from 47% in 2016. The increase can primarily be attributed to the launch of Grainger.com and other electronic purchasing platforms in the United States and across all single channel online businesses. The company is focused on improving the end-to-end customer experience by making investments in its e-commerce and digital capabilities along with executing continuous improvement initiatives within its supply chain. Notably, it intends to continuously reduce cost base.
Positive Earnings Surprise History: Grainger has an impressive earnings surprise history. The company’s earnings have surpassed the Zacks Consensus Estimate in the trailing four quarters, delivering an average positive earnings surprise of 21.5%.
Upward Estimate Revisions & Zacks Rank
The direction of estimate revisions serves as an important pointer when it comes to the price of a stock. Over the last 60 days, the Zacks Consensus Estimate for third-quarter 2018 earnings increased 7%. Estimates for 2018 and 2019 moved up 8% and 6%, respectively, over the same time frame.
The upward estimate revisions reflect optimism over prospects of this Zacks Rank #1 (Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.
Other Stocks to Consider
Other top-ranked stocks in the same sector include Albany International Corporation AIN, Flowserve Corporation FLS and Alarm.com Holdings, Inc. ALRM. While Albany International sports a Zacks Rank #1, Flowserve and Alarm.com Holdings carry a Zacks Rank #2 (Buy).
Albany International’s earnings estimates for full-year 2018 have increased by 27% while estimates for 2019 rose 21%. The company currently sports a Zacks Rank #1. Its shares have gone up 31%, year to date.
The fiscal 2018 and fiscal 2019 consensus estimate for earnings for Flowserve have moved up 4% and 3%, respectively, in the last 60 days. The company flaunts a Zacks Rank #2. Its shares have surged 30%, year to date.
Alarm.com Holdings also witnessed positive estimates revisions for fiscal 2018 and 2019. The Zacks Consensus Estimate for fiscal 2018 has gone up 5% over the past 60 days while estimates for fiscal 2019 inched up 1%. The company currently carries a Zacks Rank #2. Its shares have gained 52% year to date.
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