Blue Chip W.W. Grainger Confirms Trend On Strong Outlook

W.W. Grainger Is Everything An Investor Could Want 

W.W. Grainger (NYSE: GWW) is a highly-valued stock but you get a lot for what you pay for. Trading at 25.5X its forward earnings estimate it is well above the broad market average but this is a blue-chip stock we’re talking about, and one that is not only growing revenue but widening margins, producing strong earnings, and guiding the outlook for 2022 well above the Marketbeat.com consensus estimates. In our view, this makes this stock almost irresistible in light of the current stock market conditions. There is a great rotation going on right now, a rotation from incredibly overvalued growth stocks into their more appealing, better established, more reliable, dividend-paying cousins. 

"The second year of pandemic impacts brought a unique set of challenges in 2021. The Grainger team successfully navigated these challenges by helping our customers run their businesses effectively and stay safe. The team's relentless focus on doing the right things, the right way, allowed us to deliver on our operational and financial expectations for the year" said DG Macpherson, Chairman and Chief Executive Officer.  "We look forward to continuing to support our customers in 2022 and are confident in the path ahead."

W.W. Grainger Beats, Widens Margins, And Guides Above Expectations

W.W. Grainger had a great quarter any way that you look at it. The company reported a 14.2% increase in revenue to $3.36 billion that not only beat the analyst's consensus but includes margin expansion as well. The revenue beat the consensus by 300 basis points on strength in both operating segments and the company says demand remains strong across all channels. The High Touch segment led with an increase of 14.7% while the Endless Assortment section increased by 13.4%. 

Moving down the report, the company logged a 240 basis point improvement in gross margin and a 305 basis point improvement in operating margin on cost-leverage, pricing power, and product mix. The margin improvement helped drive outsized gains in earnings at every level as well with gross profit up 22%, operating earnings up 56%, net earnings up 68%, and adjusted EPS up 74%. On the bottom line, the adjusted EPS also beat the Marketbeat.com consensus by $0.21. 

The guidance is equally strong and the factor that is driving the stock higher. The company is guiding revenue in a range of $14.1 billion to $14.5 billion compared to the $13.94 Marketbet.com consensus estimate with adjusted earnings in a range above consensus as well. And we see upside risk in the outlook due to underlying momentum in the economy. 

W.W. Grainger, A King Of Dividend Payers 

W.W. Grainger has been increasing its dividend for 50 years and is still only paying out 35% of its earnings outlook. That by itself says a lot about management, the business health, and the outlook for future distribution increases no less the safety of the current payout. The payout is a bit on the small side at 1.3% but is still above the broad market average and there are share repurchases to consider as well. The company repo’d over $1 billion in shares last year and will probably do so again this year. The only red flag is that cash flow fell on a YOY basis and was not sufficient to pay for all the capital returns but there is an offset in the numbers. Both accounts receivable and inventory are way up YOY and more than make up the difference. 

The Technical Outlook: Grainger Confirms Trend 

Shares of W.W. Grainger recently pulled back to test support at a previous all-time high and is now moving higher. The Q4 results and 2022 guidance have shares up again in premarket trading and moving up from the short-term moving average. Price action may remain range-bound in the near-term with the top near $520 but we expect to see new all-time highs in the short to mid-term if not sooner.  The move upward is accompanied by bullish crossovers in both MACD and stochastic so there is some strength in the move.