W.W. Grainger Inc. GWW recently provided its new three-year financial targets through 2025. Being an industry leader in a large and highly attractive market and with an opportunity to gain market share, GWW is well poised to deliver growth.
Since 2017, Grainger has grown its revenues, seeing a CAGR of 7%, and adjusted earnings by 19%. Backed by the solid customer relationships that GWW has built so far and the ongoing momentum in its segments, management projects net sales between $19 and $20 billion by 2025, and adjusted earnings per share of around $40.00.
Aided by strong execution of its strategic growth engines, GWW expects its High-Touch Solutions N.A. segment to outpace the U.S market by 400-500 basis points per year. The segment has 7% of the overall market share and has the potential to gain further.
The current addressable market is estimated at $165 billion. For the Endless Assortment segment, Grainger expects sales growth in high-teen percentage in local currency for both Zoro and MonotaRO businesses through 2025. The addressable market of the segment is estimated at around $500 billion.
GWW also provided insights into its supply-chain advantage and outlined plans to invest in Distribution Center capacity, automation, and environmental, social and governance (ESG) initiatives to support growth expectations.
Grainger expects to attain net sales between $19 and $20 billion by 2025, witnessing a CAGR of 8-10% from the midpoint of its guidance for 2022 ($15.1 billion). Adjusted operating margin is targeted at 14.5%, indicating an approximately 70-basis point improvement from the mid-point of 13.8% guidance for 2022.
Adjusted earnings per share are envisioned at $40.00, implying a 43% increase from the midpoint of 2022 guidance of $28.00. Operating cash flow is expected to rise to approximately $2 billion, hinting at a 54% increase from the midpoint of 2022 guidance of $1.3 billion.
Over the next three years, GWW plans to spend between $500 and $600 million annually on capital expenditures. Management plans to follow a balanced approach to capital allocation combining investments to drive growth, while returning significant capital to its shareholders through dividends and share repurchases.
Grainger stated that it maintains the guidance provided for the current year. Grainger expects earnings per share between $27.25 and $28.75 in 2022, indicating growth of 41% at the midpoint from the year-ago reported figure.
Management projects 2022 net sales between $15 billion and $15.2 billion. Total daily sales growth is expected between 14.5% and 16.5%, backed by the ongoing momentum in the High Touch Solutions and the Endless Assortment segments.
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Shares of Grainger have gained 28.4% in the past year against the industry’s decline of 37.7%.
Zacks Rank & Other Stocks to Consider
Grainger currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Some other top-ranked stocks in the Industrial Products sector are RBC Bearings Incorporated ROLL, Valmont Industries, Inc. VMI and Greif, Inc. GEF. While ROLL sports a Zacks Rank of 1, VMI and GEF carry a Zacks Rank #2 (Buy) at present.
RBC Bearings delivered a trailing four-quarter earnings surprise of 9.4%, on average. Earnings estimates have increased 31.1% for fiscal 2023 (ending March 2023) in the past 60 days. ROLL’s shares have gained 13.1% in the past year.
Valmont Industries’ earnings surprise in the last four quarters was 13.7%, on average. In the past 60 days, its earnings estimates have increased 4.3% for 2022. The VMI stock has rallied 13.5% in the past year.
Greif delivered a trailing four-quarter earnings surprise of 22.4%, on average. Earnings estimates have increased 4.6% for fiscal 2022 (ending October 2022) in the past 60 days. GEF’s shares have risen 1.8% in the past year.
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