Grainger Out-Executing Going Into The Downturn

Two of the three largest industrial distributors have held up relatively well so far on a year-to-date basis, with both Fastenal (FAST) and W.W. Grainger (GWW) outperforming the larger industrial group, while MSC Industrial (MSM) has lagged slightly. In the case of Grainger, the company is going into this downturn in relatively good shape, outgrowing the MRO market by a healthy amount in the first quarter as a variety of initiatives, including its “endless assortment” online business, contribute positively.

Grainger isn’t going to escape the downturn, but the company's diversification and growth initiatives (including Zoro and MonotaRo) should help mitigate some of the damage, and I believe Grainger may see less revenue erosion in 2020 than its peers. I do expect Fastenal to outgrow Grainger on a longer-term basis, but the valuation here is quite reasonable. I’m reluctant to get aggressive on Grainger at this point in the cycle, but if another round of market worries were to take the shares back into the $250s or below, it might well be a name worth considering for the longer-term recovery and its own internal improvement efforts.

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Grainger Out-Executing Going Into The Downturn