Market Capitalization $13.9 Billion

Transcription

1 BUY HOLD SELL A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F Annual Dividend Rate BUY BUY RATING SINCE 06/09/2009 TARGET PRICE $ BUSINESS DESCRIPTION W.W. Grainger, Inc. distributes maintenance, repair, and operating (MRO) supplies; and other related products and services that are used by businesses and institutions. STOCK PERFORMANCE (%) 3 Mo. 1 Yr. 3 Yr (Ann) Price Change GROWTH (%) Last Qtr 12 Mo. 3 Yr CAGR Revenues Net Income EPS RETURN ON EQUITY (%) Ind Avg S&P 500 Q Q Q P/E COMPARISON Sector: Industrials Sub-Industry: Trading Companies & Distributors Source: S&P Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years Rating History BUY Volume in Millions COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History TARGET PRICE $ EPS ANALYSIS¹ ($) Ind Avg S&P 500 RECOMMENDATION We rate () a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any nesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself. HIGHLIGHTS 's revenue growth has slightly outpaced the industry average of 2.6%. Since the same quarter one year prior, revenues slightly increased by 2.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share. Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Trading Companies & Distributors industry and the overall market, 's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500. Q Q Q Q Q Q Q NA = not available NM = not meaningful Q Q Compustat fiscal year convention is used for all fundamental data items. ' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, increased its bottom line by earning $11.54 versus $11.45 in the prior year. This year, the market expects an improvement in earnings ($12.08 versus $11.54). The debt-to-equity ratio is somewhat low, currently at 0.92, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a debt-to-equity ratio, its quick ratio of 0.84 is somewhat and could be cause for future problems % is the gross profit margin for which we consider to be. Regardless of 's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 7.44% trails the industry average. PAGE 1

2 PEER GROUP ANALYSIS REVENUE GROWTH AND EBITDA MARGIN* Revenue Growth (TTM) BECN -10% 40% HDS WSO.B FAST MSM UNFAVORABLE WCC 0% EBITDA Margin (TTM) URI FAVORABLE AL 100% Companies with higher EBITDA margins and revenue growth rates are outperforming companies with lower EBITDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $2.5 Billion and. Companies with NA or NM values do not appear. *EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization. REVENUE GROWTH AND EARNINGS YIELD Revenue Growth (TTM) BECN -10% 40% UNFAVORABLE WSO.B FAST MSM 2.5% URI WCC Earnings Yield (TTM) AL FAVORABLE AER HDS 20% Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between -5.3% and 37.8%. Companies with NA or NM values do not appear. INDUSTRY ANALYSIS Trading companies and distributors provide industrial equipment and products to firms operating in manufacturing, construction, services, and government sectors. The industry moves a diverse range of products, including engines, boilers, metal-working equipment, elevators, fire and security equipment, generators, switchgears, power cables, turbines, process and discrete automation products, construction materials, and commercial refrigeration. Industrial machinery is the largest component of the equipment market with a share of nearly 60%. The US accounts for around 30% of the global industrial equipment market. The industry is large, fragmented, and cyclical. A majority of the market is serviced by small retailers, dealerships, and distributors. Bargaining power is due to competition, low switching costs, and product differentiation. Companies face competition from manufacturers that sell directly to the market, retail outlets, small dealerships, catalog houses, large warehouse stores, and direct mail suppliers. Firms compete on variety of product offerings, customization of services, knowledge of customers, and price. Small distributors are specialists in niche segments where they can offer a broader selection. Some multi-regional competitors are part of larger companies and therefore have access to greater financial resources. WW Grainger (), WESCO International (WCC), Fastenal (FAST), United Rentals (URI), BlueLinx Holdings (BXC), and MSC Industrial Direct (MSM) are major players. The industry is consolidating because high administrative costs associated with order placements are forcing consumers to streamline their purchasing process by utilizing a limited number of suppliers. Limited capital availability, high operating costs, and poor sales volumes are pressuring small suppliers. There is a trend of sourcing from low-cost countries to maintain margins. The rising share of India and China in the world s output, trade, and demand has opened a high-growth market for the US. Industry performance is correlated to production growth, non-farm payrolls, and employment levels. The economic recovery may bolster sales. Macroeconomic indicators are likely to pick up throughout the slow economic recovery. The industry faces risks from skills shortage, exchange rate uncertainties, volatile energy prices, and pricing pressure. However, improved production in low-cost countries, lower fuel prices, and falling interest rates may provide some relief. US stimulus packages provided a depreciation bonus to the beneficiary on newly purchased equipments, which boosted demand. With the bottoming in industrial production and commercial construction, activities of trading companies and distributors are likely to improve. Consolidation should help long-term viability as economies of scale are achieved by consolidated players. A recovery in emerging markets could boost industry prospects. PEER GROUP: Trading Companies & Distributors Recent Market Price/ Net Sales Net Income Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M) , , AER AERCAP HOLDINGS NV , , , HDS HD SUPPLY HOLDINGS INC , , , URI UNITED RENTALS INC , , WSO.B WATSCO INC , , WSO WATSCO INC , , MSM MSC INDUSTRIAL DIRECT , , AL AIR LEASE CORP , , BECN BEACON ROOFING SUPPLY INC , , WCC WESCO INTL INC , , FAST FASTENAL CO , , The peer group comparison is based on Major Trading Companies & Distributors companies of comparable size. PAGE 2

3 Annual Dividend Rate COMPANY DESCRIPTION W.W. Grainger, Inc. distributes maintenance, repair, and operating (MRO) supplies; and other related products and services that are used by businesses and institutions. The company offers material handling equipment, safety and security supplies, lighting and electrical products, power and hand tools, pumps and plumbing supplies, cleaning and maintenance supplies, building and home inspection supplies, vehicle and fleet components, and various other products. It also offers inventory management solutions; and distributes tools, fasteners, safety supplies, welding and shop equipment, and other products. The company offers its products through various branches, sales and service representatives, distribution centers, and catalogs, as well as through Websites. It serves small and medium-sized businesses, large corporations, government entities, and other institutions. The company also operates in the United States, Canada, Europe, Asia, and Latin America. W.W. Grainger, Inc. was founded in 1927 and is based in Lake Forest, Illinois. 100 Grainger Parkway Lake Forest, IL USA Phone: STOCK-AT-A-GLANCE Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and nesses. It is important to note, however, that these factors only tell part of the story. To gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stock s valuation. Please refer to our Valuation section on page 5 for further information. FACTOR SCORE Growth 4.5 out of 5 stars Measures the growth of both the company's income statement and cash flow. On this factor, has a growth score better than 80% of the stocks we rate. Total Return 2.5 out of 5 stars Measures the historical price movement of the stock. The stock performance of this company has beaten 40% of the companies we cover. Efficiency 5.0 out of 5 stars Measures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 90% of the companies we review. Price volatility 4.0 out of 5 stars Measures the volatility of the company's stock price historically. The stock is less volatile than 70% of the stocks we monitor. Solvency 3.5 out of 5 stars Measures the solvency of the company based on several ratios. The company is more solvent than 60% of the companies we analyze. Income 3.5 out of 5 stars Measures dividend yield and payouts to shareholders. The company's dividend is higher than 60% of the companies we track. THESTREET RATINGS RESEARCH METHODOLOGY TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. PAGE 3

4 Consensus EPS Estimates² ($) IBES consensus estimates are provided by Thomson Financial 3.20 Q2 FY E 2016(E) E 2017(E) INCOME STATEMENT Net Sales ($mil) 2, , EBITDA ($mil) EBIT ($mil) Net Income ($mil) FINANCIAL ANALYSIS 's gross profit margin for the first quarter of its fiscal year 2016 has decreased when compared to the same period a year ago. Even though sales increased, the net income has decreased. has liquidity. Currently, the Quick Ratio is 0.84 which shows a lack of ability to cover short-term cash needs. The company's liquidity has decreased from the same period last year, indicating deteriorating cash flow. At the same time, stockholders' equity ("net worth") has significantly decreased by 27.63% from the same quarter last year. Overall, the key liquidity measurements indicate that the company is in a position in which financial difficulties could develop in the future. STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. To learn more visit BALANCE SHEET Cash & Equiv. ($mil) Total Assets ($mil) 5, , Total Debt ($mil) 2, Equity ($mil) 2, , PROFITABILITY Gross Profit Margin 43.94% 46.98% EBITDA Margin 15.39% 16.62% Operating Margin 13.15% 14.48% Sales Turnover Return on Assets 12.48% 15.27% Return on Equity 32.84% 25.40% DEBT Current Ratio Debt/Capital Interest Expense Interest Coverage SHARE DATA Shares outstanding (mil) Div / share EPS Book value / share Institutional Own % NA NA Avg Daily Volume 557, ,188 2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates. PAGE 4

5 RATINGS HISTORY Our rating for has not changed since 12/12/2002. As of 6/9/2016, the stock was trading at a price of which is 7.7% below its 52-week high of $ and 28.5% above its 52-week low of $ Year Chart BUY: $ $275 $250 $225 $200 MOST RECENT RATINGS CHANGES Date Price Action From To 6/9/14 $ No Change Buy Buy Price reflects the closing price as of the date listed, if available RATINGS DEFINITIONS & DISTRIBUTION OF THESTREET RATINGS (as of 6/9/2016) 38.56% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months % Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss % Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns. TheStreet Ratings 14 Wall Street, 15th Floor New York, NY Research Contact: Sales Contact: VALUATION BUY. This stock's P/E ratio indicates a discount compared to an average of for the Trading Companies & Distributors industry and a discount compared to the S&P 500 average of For additional comparison, its price-to-book ratio of 6.14 indicates a significant premium versus the S&P 500 average of 2.79 and a significant premium versus the industry average of The price-to-sales ratio is below both the S&P 500 average and the industry average, indicating a discount. The valuation analysis reveals that, GRAINGER (W W) INC seems to be trading at a discount to investment alternatives within the industry. Price/Earnings Peers Discount. A lower P/E ratio than its peers can signify a less expensive stock or lower growth expectations. is trading at a significant discount to its peers. Price/Projected Earnings Peers Average. An average price-to-projected earnings ratio can signify an industry neutral stock price and average future growth expectations. is trading at a valuation on par with its peers. Price/Book 6.14 Peers 4.28 Premium. A higher price-to-book ratio makes a stock less attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet. is trading at a significant premium to its peers. Price/Sales 1.39 Peers 1.48 Average. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. is trading at a valuation on par with its industry on this measurement. DISCLAIMER: Price/CashFlow Peers Average. The P/CF ratio, a stock s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures. is trading at a valuation on par to its peers. Price to Earnings/Growth 4.65 Peers 3.45 Premium. The PEG ratio is the stock s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples. trades at a significant premium to its peers. Earnings Growth lower higher 0.00 Peers Neutral. Higher earnings growth rates can lead to capital appreciation and justify higher price-to-earnings ratios. The growth rate for is not available. Sales Growth lower higher 0.21 Peers 3.15 Lower. A sales growth rate that trails the industry implies that a company is losing market share. significantly trails its peers on the basis of sales growth The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSTAT Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as other third-party data providers. TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at PAGE 5