W.W. Grainger Inc.
) is set to report third quarter fiscal 2013 results before the
opening bell on Oct 16. Let's see how things are shaping up prior
to the announcement.
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Factors to Consider This Quarter
Grainger's sound balance sheet, low debt level and cash flow
characteristics allow the company to further invest in growth
opportunities, raise dividends and reinvest capital through share
repurchases. The company has been rewarding shareholders with
consistent dividend hikes over the last 42 years, a record that
only 3% of the S&P 500 companies can boast.
Grainger continues to expand is product offerings and strengthen
its businesses across all operating regions, mainly in Asia and
Latin America, as well as continually invest in e-commerce - its
most profitable channel. Though this will benefit Grainger's
sales in the long term, sales growth has remained choppy in 2013.
It has ranged from a low of 3% in March to 8% in Jan and Apr
2013. Growth in July and August remained at 4%, close to the
year's slowest growth rate of 3% reported in March.
According to the latest reports, Grainger's daily sales growth in
the U.S. in September was trending above August level. However,
sales were lower outside the U.S. due to slowing sales in local
currency and unfavorable foreign exchange. Overall September
sales growth had been reported in line with the August level.
Grainger has projected incremental growth-related spending of
$150 million. Even though these initiatives will lead to
additional share gains in the future, it will weigh on margins in
the short term.
Our proven model does not conclusively show that Grainger is
likely to beat earnings this quarter. That is because a stock
needs to have both a positive
(expected surprise prediction) and a Zacks Rank of #1, 2 or 3 for
this to happen. That is not the case here as you will see below.
Negative Zacks ESP:
This is because the Most Accurate estimate stands at $3.04
while the Zacks Consensus Estimate is higher at $3.09. This comes
to a difference of -1.62%.
Zacks Rank #3 (Hold)
: Grainger's Zacks Rank #3 (Hold) lowers the predictive power of
ESP because the Zacks Rank #3 when combined with a negative ESP
makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and #5 (Sell rated
stocks) going into the earnings announcement, especially when the
company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies in the peer group that can be
considered, as our model shows they have the right combination of
elements to post an earnings beat this quarter:
), Earnings ESP of +0.91% and a Zacks Rank #2 (Buy).
Generac Holdings Inc.
), Earnings ESP of +1.21% and a Zacks Rank # 3 (Hold).
Honeywell International Inc.
), Earnings ESP of +0.81% and a Zacks Rank #2 (Buy)