Have you been paying attention to shares of W.W. Grainger (GWW)? Shares have been on the move with the stock up 13.7% over the past month. GWW hit a new 52-week high of $358.63 in the previous session. W.W. Grainger has gained 48.9% since the start of the year compared to the -6.3% move for the Industrial Products sector and the 24.8% year-to-date return for its peer group.
What's Driving the Outperformance?
The stock has an impressive record of positive earnings surprises, having beaten the Zacks Consensus Estimate in each of the last four quarters. In its last earnings report on July 18, 2018, W.W. Grainger reported EPS of $4.37 versus consensus estimate of $3.78 while it beat the consensus revenue estimate by 1.44%.
For the current fiscal year, W.W. Grainger is expected to post earnings of $16.01 per share on $11.25 billion in revenues. This represents a 39.7% change in EPS on a 7.94% change in revenues. For the next fiscal year, the company is expected to earn $17.74 per share on $11.96 billion in revenues. This represents a year-over-year change of 10.84% and 6.29%, respectively.
W.W. Grainger may be at a 52-week high right now, but what might the future hold for GWW? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.
On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.
W.W. Grainger has a Value Score of C. The stock's Growth and Momentum Scores are A and D, respectively, giving the company a VGM Score of B.
In terms of its value breakdown, the stock currently trades at 22X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 21.2X versus its peer group's average of 11.3X. Additionally, the stock has a PEG ratio of 1.76. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.
W.W. Grainger, Inc. Price and Consensus
W.W. Grainger, Inc. Price and Consensus | W.W. Grainger, Inc. Quote
We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, W.W. Grainger currently has a Zacks Rank of #1 (Strong Buy) thanks to rising earnings estimates.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if W.W. Grainger meets the list of requirements. Thus, it seems as though GWW shares could have a bit more room to run in the near term.
How Does W.W. Grainger Stack Up to the Competition?
Shares of W.W. Grainger have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? Some of its industry peers are also looking good, including Harsco (HSC), Belden (BDC), and Avery Dennison (AVY), all of which currently have a Zacks Rank of at least #2 and a VGM Score of at least B, making them well-rounded choices.
However, it is worth noting that the Zacks Industry Rank for this group is in the bottom half of the ranking, so it isn't all good news for W.W. Grainger. Still, the fundamentals for GWW are promising, and it still has potential despite being at a 52-week-high.
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