The bull/bear debate on W.W. Grainger (GWW) (“Grainger”) hasn’t really changed much in recent years and boils down to – “competition from the likes of Amazon (AMZN) will continue to drive down their gross margins” vs. “nuh-uh!”. Obviously I’m being glib, but the bulls don’t often offer much up for their pro-margin argument beyond “management says so” and a few vague comments about future scale advantages in the Endless Assortment operations.
I was leaning bullish on Grainger back at the time of my last article, and the shares have kept pace with the wider industrial market since then, giving back some outperformance since reporting disappointing second quarter earnings where, surprise!, margins were an issue. Looking at a year-to-date or trailing-year comparison, Grainger’s stock performance falls between Fastenal (FAST) and MSC Industrial (MSM), which feels right on several levels (quality, market exposures, etc.).
I’m still stuck in a valuation grey zone with Grainger shares. I like the company’s strategic moves (and priorities), and while I don’t think the bulls are completely right on gross margins, I also don’t think the bears are completely right. I see Grainger as a mid-single-digit return prospect now over a longer-term holding period, which isn’t bad for industrials, but isn’t really compelling either.
Read the full article at Seeking Alpha:
Grainger's Growth Drivers Are Delivering, But Long-Term Margins Still In Debate
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