Grainger Executing On Margins, But The Pressures Are Increasing

Given their sensitivity to the economic cycle, it’s no great surprise that the market performance of industrial distributors like Fastenal (FAST), Grainger (GWW), and MSC Industrial (MSM) has been lackluster at best. Likewise, it makes sense that Grainger’s relatively better end-market exposure and margin performance would drive better performance than MSC, the laggard of the three.

Grainger shares don’t look expensive now, but I do still have some concerns that management may be underestimating the weakening trends underway in manufacturing end-markets and overestimating the ability of its internal programs to drive above-market growth. I think investors will have at least one more chance to buy Grainger shares at a better price in the second half of 2019, but the shares do look relatively attractive compared to Fastenal and MSC at this point.

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Grainger Executing On Margins, But The Pressures Are Increasing