W.W. Grainger: Boring Industry But Tech Like Returns

seekingalpha11-06

Grainger's strong logistics and supply network, along with long-term supplier relationships, create a barrier to entry, ensuring continued earnings protection and high-quality performance.The company'...

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Grainger: Boring Industry But Tech Like Returns","media":"seekingalpha","content":"<div>\n<p>Grainger's strong logistics and supply network, along with long-term supplier relationships, create a barrier to entry, ensuring continued earnings protection and high-quality performance.The company'...</p>\n\n<a href=\"https://seekingalpha.com/article/4733530-ww-grainger-stock-q3-boring-industry-tech-like-returns-hold-for-now\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>W.W. 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Grainger: Boring Industry But Tech Like Returns\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-06 11:48 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4733530-ww-grainger-stock-q3-boring-industry-tech-like-returns-hold-for-now><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Grainger's strong logistics and supply network, along with long-term supplier relationships, create a barrier to entry, ensuring continued earnings protection and high-quality performance.The company'...</p>\n\n<a href=\"https://seekingalpha.com/article/4733530-ww-grainger-stock-q3-boring-industry-tech-like-returns-hold-for-now\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"IE00B19Z9505.USD","symbol_name":"美盛-美国大盘成长股A Acc","start_time":0,"source_url":"https://seekingalpha.com/article/4733530-ww-grainger-stock-q3-boring-industry-tech-like-returns-hold-for-now","article_id":"2481616781","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1291259392/image_1291259392.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2481616781","pubTimestamp":1730864883,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Grainger's strong logistics and supply network, along with long-term supplier relationships, create a barrier to entry, ensuring continued earnings protection and high-quality performance.The company'","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"IE00B19Z9505.USD":"美盛-美国大盘成长股A Acc","BK4588":"碎股","GWW":"美国固安捷","BK4567":"ESG概念","BK4104":"贸易公司与经销商","BK4585":"ETF&股票定投概念"},"translate_title":"W.W.固安捷：无聊的行业，但像科技一样有回报","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"GWW":0.9},"content_text":"Grainger's strong logistics and supply network, along with long-term supplier relationships, create a barrier to entry, ensuring continued earnings protection and high-quality performance.The company's balance sheet is robust, with a net debt to net income ratio of less than 1 and increasing interest coverage, indicating financial security.Grainger's capital allocation is impressive, with a high ROIC-WACC spread and a reliable, steadily increasing dividend, making it attractive for dividend-focused investors.   jetcityimage  The W.W. Grainger Investment Thesis I am currently working my way through a large pile of companies that I have found through social media mentions, my own screens or on Seeking Alpha to see if I find anything interesting to buy or add to the watch list. And W.W. Grainger (NYSE:GWW) has often been mentioned as an outstanding company that still does not get the attention it deserves. And I have to agree that they are an outstanding company because I think the relationship that they have with their customers and suppliers is something that is hard to replicate. Unfortunately, this is priced in because the market has also recognized how good Grainger is, so Grainger's valuation is the reason why the company has only landed on my waiting list and I have not yet invested. But in the future, at the right price, I would not be against it. Although Grainger operates in an industry that many investors pay little attention to, the company has delivered returns that have eclipsed many of the most closely watched technology stocks. GWW's Business Data by YCharts Grainger operates in the rather unsexy maintenance, repair, and operations segment, which may explain why this stock is so overlooked despite its stellar long-term performance. Over the past 10 years, Grainger has outperformed the S&P 500 (SPY) by a wide margin, as shown in the chart above. And I think there is a good chance that Grainger will continue to outperform because they have built a good logistics and supply network that acts as a kind of barrier to entry to protect their earnings. Long-term supplier relationships and the Grainger brand are things that are hard to replicate, as Grainger is a trusted brand for many of their customers. So I think Grainger is a high-quality company with attractive metrics, as we will see later.   W.W. Grainger Investor Presentation Grainger is unlikely to appear on many screens, as annual sales growth of just 5.5% over the past 10 years is considered too low by many. And this trend of relatively low growth continues, with Grainger's sales up 4% in Q3/24. Overall, the third quarter was a mixed bag as revenue was in line with analyst estimates, but diluted EPS, which grew 4.7%, was $0.09 less than expected.   W.W. Grainger Investor Presentation On the other hand, the renewed guidance for FY24 was pleasing, as the floor for sales, gross margin, operating margin and EPS was raised. However, it should be noted that the sales growth rate is likely to be below the long-term trend and that EPS has also grown more strongly in the past. Grainger's Balance Sheet   W.W. Grainger Investor Presentation Grainger's balance sheet is the way I like it. They have total debt of $2,776 million minus $1,448 million in cash and cash equivalents, which leaves them with net debt of $1,351. And net income, which I use instead of EBITDA as Grainger does in his calculation above, is $1,829 million over the last 12 months. As a result, Grainger has a net debt to net income ratio of < 1, which to me personally indicates a strong balance sheet. Data by YCharts And Grainger's increasing interest coverage over the last few years, now at 31x, also shows just how financially secure the company is. GWW's Capital Allocation Data by YCharts Since I place a lot of emphasis on ROIC, this is often a point that makes or breaks an investment for me. And this is where Grainger is performing strongly relative to some of its peers. In fact, the ROIC is even lower than the adjusted ROIC that they publish in their investor presentations, which is currently 42%. But even the unadjusted ROIC of 30% at a WACC of 7.5% gives a ROIC-WACC spread of 22.5%, which is incredibly high and shows that there is a strong value creation. While ROICs have declined somewhat since peaking in July 2023, Grainger is still the clear winner in the peer group, along with Fastenal Co (FAST). Data by YCharts Another important part of Grainger's capital allocation is its dividend, which has been increasing for 52 years and represents a payout ratio of ~20%. And in recent years, annual dividend increases have been in the mid-single digits, typically between 5% and 7%. So for people who care about dividends, Grainger is a reliable dividend payer that will likely continue to increase its dividend a little each year for the foreseeable future. Grainger's PE Ratio Data by YCharts Grainger's fantastic total return results have been helped a bit by multiple expansion, as the multiple is currently higher than it was 10 years ago and also is above the 10-year average of 23x. However, I do not believe that the current multiple is excessive, but rather slightly overvalued. Anything in the low 20x range I think is fair value, and anything below 20x I think is undervalued for a company of this quality. What Is The Market Pricing In?   Author By reverse engineering, we can see what the market is pricing in, and based on TTM diluted EPS of $36.88, the market is currently pricing in an EPS growth rate of 13% over the next 10 years. And this reinforces my view that the shares are slightly overvalued, as the 10-year long-term EPS growth rate is around 12%. So I think Grainger is a little expensive at its current multiple, and I personally would like to see a multiple closer to the 10-year average before I would take a position. But even at this current multiple, I think the company will continue to do well, just not as well as it did in the past. My personal threshold is to have a high probability of 100%+ upside over the next 5 years, and at the current multiple I think there are other companies that have a higher probability of achieving that. Margin Development Data by YCharts Grainger, like many other companies, went through a period during COVID-19 when margins were slightly depressed for a short period, but they have since recovered and net profit margins are actually higher than before COVID-19. So I think it is safe to say that margins are robust and are likely to remain in the current range, with slight ups and downs. Risks Inflation could erode margins if costs rise faster than sales and, depending on post-election tariff policies, that could affect the products Grainger sources from Asia or other countries. And since e-commerce is an important part of Grainger's business, cyber-attacks, which are unfortunately becoming more common, could hit a key point in the business. But these risks are common to many companies, and since they are known, I believe Grainger has most likely taken precautions. Conclusion As I said, I like the company and the fact that they are in an area away from all the buzz and are still growing steadily. But I think the market is expecting Grainger to do a little bit more than I think is realistic. I don't think they're going to get to 13% EPS growth a year, I think they're going to be more in the 10% to 11% range. But even that 10% to 11% would be a strong number, probably beating the S&P 500, but not quite enough for me since my target is a bit higher.  But if the price is right, I am definitely interested in Grainger, so I have put it on my watch list and will check in on it from time to time.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2481616781"}