W.W. Grainger (GWW) delivered another strong quarter on October 14 followed once again by increased sales and earnings guidance going forward. This prompted analysts to raise their estimates, which propelled the stock to a Zacks #1 Rank (Strong Buy).
The company also continues to reward its shareholders through its solid free cash flow. Management has been aggressively buying back stock, and the company has been a model of consistency when it comes to paying and raising its dividend.
Third Quarter Results
W.W. Grainger reported third quarter earnings per share of $1.99, beating the Zacks Consensus Estimate by 9%. It was a 32% increase from the same quarter in 2009.
The company saw strong top-line growth as net sales increased 19.5% year-over-year. Sales from products related to the clean up of the oil spill in the Gulf of Mexico contributed about 3% of that growth.
The company also was able to successfully implement price increases while controlling its costs, as the gross margin inched up slightly, from 41.5% to 41.6%.
Raising Guidance
Following another strong quarter, management once again raised sales and earnings guidance for 2010. The company now expects sales growth of 14%-15% and earnings per share between $6.40 and $6.70. Previous guidance called for 12%-14% sales growth and EPS between $6.10 and $6.40.
Analysts have also been revising their earnings estimates higher. The Zacks Consensus Estimate for 2010 is $6.66, within management’s guidance, and a 24% increase from 2009 EPS.
Estimates for 2010 and 2011 have been trending higher for several months, as seen in the Price & Consensus chart:
The Zacks Consensus Estimate for 2011 is currently $7.61, corresponding to 14% annual growth.
Stable Income
W.W. Grainger has an excellent history of paying, and raising, its dividend. It has raised its dividend every year without fail since 1971. Talk about consistency.
Since 2000, the company has increased its dividend at a compound annual rate of 12.0%.
It currently yields 1.8%.
Fundamentals
Shares are trading at 18.6x forward earnings, a premium to the peer group average of 14.3x. Its PEG ratio is reasonable, though, at 1.35.
Return on investment is a stellar 17.5%, well-above the peer group average of 6.8%.
The company also spent nearly $250 million dollars in the quarter buying back 2.3 million shares.
Read the July 22 article here.
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