W.W. Grainger Inc Valuation – February 2019 $GWW

Company Profile (excerpt from Reuters): W.W. Grainger, Inc. (Grainger), incorporated on December 27, 1928, is a distributor of maintenance, repair and operating (MRO) supplies and other related products and services. The Company offers its products and services to businesses and institutions in the United States and Canada, with presence also in Europe, Asia and Latin America. The Company operates through two segments, which include the United States and Canada. The Company’s business support functions provide coordination and guidance in the areas of accounting and finance, business development, communications and investor relations, compensation and benefits, information systems, health and safety, global supply chain functions, human resources, risk management, internal audit, legal, real estate, security, tax and treasury. The Company’s other businesses also include Zoro Tools, Inc. (Zoro), the single channel online business in the United States, MonotaRO Co. (MonotaRO) in Japan, and operations in Europe, Asia and Latin America.

Downloadable PDF version of this valuation:

ModernGraham Valuation of GWW – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $17,300,462,081 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.37 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 61.29% Pass
6. Moderate PEmg Ratio PEmg < 20 22.81 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 8.33 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.37 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.02 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $13.56
MG Growth Estimate 3.46%
MG Value $209.15
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $196.57
MG Value based on 0% Growth $115.23
Market Implied Growth Rate 7.15%
Current Price $309.17
% of Intrinsic Value 147.82%

W W Grainger Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $11.01 in 2015 to an estimated $13.56 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.15% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into W W Grainger Inc revealed the company was trading above its Graham Number of $121.15. The company pays a dividend of $5.36 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 22.81, which was below the industry average of 24.89, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-3.96.

W W Grainger Inc performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$3.96
Graham Number $121.15
PEmg 22.81
Current Ratio 2.37
PB Ratio 8.33
Current Dividend $5.36
Dividend Yield 1.73%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $3,557,000,000
Total Current Liabilities $1,501,000,000
Long-Term Debt $2,090,000,000
Total Assets $5,873,000,000
Intangible Assets $884,000,000
Total Liabilities $3,780,000,000
Shares Outstanding (Diluted Average) 56,377,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $17.41
Dec2018 $13.73
Dec2017 $10.02
Dec2016 $9.87
Dec2015 $11.58
Dec2014 $11.45
Dec2013 $11.13
Dec2012 $9.52
Dec2011 $9.07
Dec2010 $6.93
Dec2009 $5.62
Dec2008 $5.97
Dec2007 $4.94
Dec2006 $4.24
Dec2005 $3.78
Dec2004 $3.13
Dec2003 $2.46
Dec2002 $2.24
Dec2001 $1.84
Dec2000 $2.05
Dec1999 $1.92

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $13.56
Dec2018 $11.53
Dec2017 $10.56
Dec2016 $10.79
Dec2015 $11.01
Dec2014 $10.36
Dec2013 $9.36
Dec2012 $8.13
Dec2011 $7.12
Dec2010 $5.94
Dec2009 $5.27
Dec2008 $4.87
Dec2007 $4.11
Dec2006 $3.52
Dec2005 $3.01
Dec2004 $2.53
Dec2003 $2.19

Recommended Reading:

Other ModernGraham posts about the company

W.W. Grainger Inc Valuation – May 2018 $GWW
Best Dividend Paying Stocks for Dividend Growth Investors – August 2017
Best Dividend Paying Stocks for Dividend Growth Investors – March 2017
15 Best Stocks for Value Investors This Week – 1/14/17
W. W. Grainger Inc Valuation – January 2017 $GWW

Other ModernGraham posts about related companies

Arconic Inc Valuation – February 2019 $ARNC
Roper Technologies Inc Valuation – February 2019 $ROP
Rockwell Automation Inc Valuation – February 2019 $ROK
Eaton Corp PLC Valuation – January 2019 $ETN
Fastenal Co Valuation – January 2019 $FAST
Deere & Co Valuation – January 2019 $DE
A.O. Smith Corp Valuation – January 2019 $AOS
Parker-Hannifin Corp Valuation – January 2019 $PH
Dover Corp Valuation – January 2019 $DOV
Caterpillar Inc Valuation – November 2018 $CAT

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

W.W. Grainger Inc Valuation – May 2018 $GWW

Company Profile (excerpt from Reuters): W.W. Grainger, Inc. (Grainger), incorporated on December 27, 1928, is a distributor of maintenance, repair and operating (MRO) supplies and other related products and services. The Company offers its products and services to businesses and institutions in the United States and Canada, with presence also in Europe, Asia and Latin America. The Company operates through two segments, which include the United States and Canada. The Company’s business support functions provide coordination and guidance in the areas of accounting and finance, business development, communications and investor relations, compensation and benefits, information systems, health and safety, global supply chain functions, human resources, risk management, internal audit, legal, real estate, security, tax and treasury. The Company’s other businesses also include Zoro Tools, Inc. (Zoro), the single channel online business in the United States, MonotaRO Co. (MonotaRO) in Japan, and operations in Europe, Asia and Latin America.

GWW Chart

GWW data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of GWW – May 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $16,064,048,387 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.20 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 56.52% Pass
6. Moderate PEmg Ratio PEmg < 20 24.71 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 9.14 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.20 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.24 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $11.60
MG Growth Estimate 1.80%
MG Value $140.40
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $168.25
MG Value based on 0% Growth $98.63
Market Implied Growth Rate 8.11%
Current Price $286.77
% of Intrinsic Value 204.25%

W W Grainger Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $10.36 in 2014 to an estimated $11.6 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.11% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into W W Grainger Inc revealed the company was trading above its Graham Number of $97.04. The company pays a dividend of $5.06 per share, for a yield of 1.8% Its PEmg (price over earnings per share – ModernGraham) was 24.71, which was below the industry average of 28.03, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-14.63.

W W Grainger Inc performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$14.63
Graham Number $97.04
PEmg 24.71
Current Ratio 2.20
PB Ratio 9.14
Current Dividend $5.06
Dividend Yield 1.76%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $3,307,162,000
Total Current Liabilities $1,504,332,000
Long-Term Debt $2,244,406,000
Total Assets $5,902,811,000
Intangible Assets $549,418,000
Total Liabilities $4,132,213,000
Shares Outstanding (Diluted Average) 56,403,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $13.95
Dec2017 $10.02
Dec2016 $9.87
Dec2015 $11.58
Dec2014 $11.45
Dec2013 $11.13
Dec2012 $9.52
Dec2011 $9.07
Dec2010 $6.93
Dec2009 $5.62
Dec2008 $5.97
Dec2007 $4.94
Dec2006 $4.24
Dec2005 $3.78
Dec2004 $3.13
Dec2003 $2.46
Dec2002 $2.24
Dec2001 $1.84
Dec2000 $2.05
Dec1999 $1.92
Dec1998 $2.44

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $11.60
Dec2017 $10.56
Dec2016 $10.79
Dec2015 $11.01
Dec2014 $10.36
Dec2013 $9.36
Dec2012 $8.13
Dec2011 $7.12
Dec2010 $5.94
Dec2009 $5.27
Dec2008 $4.87
Dec2007 $4.11
Dec2006 $3.52
Dec2005 $3.01
Dec2004 $2.53
Dec2003 $2.19
Dec2002 $2.07

Recommended Reading:

Other ModernGraham posts about the company

Best Dividend Paying Stocks for Dividend Growth Investors – August 2017
Best Dividend Paying Stocks for Dividend Growth Investors – March 2017
15 Best Stocks for Value Investors This Week – 1/14/17
W. W. Grainger Inc Valuation – January 2017 $GWW
Best Dividend Paying Stocks for Dividend Growth Investors – December 2016

Other ModernGraham posts about related companies

Arconic Inc Valuation – April 2018 $ARNC
Rockwell Automation Inc Valuation – April 2018 $ROK
Roper Technologies Inc Valuation – April 2018 $ROP
Eaton Corp PLC Valuation – March 2018 $ETN
Fastenal Co Valuation – March 2018 $FAST
Deere & Co Valuation – March 2018 $DE
A.O. Smith Corp Valuation – March 2018 $AOS
Parker-Hannifin Corp Valuation – March 2018 $PH
Dover Corp Valuation – March 2018 $DOV
Ingersoll-Rand PLC Valuation – February 2018 $IR

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

W. W. Grainger Inc Valuation – January 2017 $GWW

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how W.W. Grainger Inc (GWW) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): W.W. Grainger, Inc. (Grainger) is a distributor of maintenance, repair and operating (MRO) supplies and other related products and services. The Company offers its products and services to businesses and institutions in the United States and Canada, with presence also in Europe, Asia and Latin America. Grainger operates through two segments: the United States and Canada. The United States segment offers a selection of maintenance, repair and operating supplies, and other related products and services. The Canada segment includes Acklands – Grainger Inc. (Ackland – Grainger), which is a distributor of industrial and safety supplies. The Company’s others businesses include The Fabory Group (Fabory), MonotaRO Co. (MonotaRO), Grainger Mexico and Zoro Tools, Inc. (Zoro). Fabory is a European distributor of fasteners, tools and industrial supplies. Zoro is an online distributor of MRO products serving businesses and consumers through its Website, Zoro.com.

GWW Chart

GWW data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of GWW – January 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $14,426,442,081 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.04 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 105.81% Pass
6. Moderate PEmg Ratio PEmg < 20 21.22 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.00 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.04 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.18 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $11.16
MG Growth Estimate 5.60%
MG Value $219.90
Opinion Fairly Valued
MG Grade B+
MG Value based on 3% Growth $161.82
MG Value based on 0% Growth $94.86
Market Implied Growth Rate 6.36%
Current Price $236.81
% of Intrinsic Value 107.69%

W W Grainger Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $8.13 in 2012 to an estimated $11.16 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 6.36% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into W W Grainger Inc revealed the company was trading above its Graham Number of $92.08. The company pays a dividend of $4.78 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 21.21, which was below the industry average of 22.25, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-11.81.

W W Grainger Inc performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$11.81
Graham Number $92.08
PEmg 21.21
Current Ratio 2.04
PB Ratio 7.00
Current Dividend $4.78
Dividend Yield 2.02%
Number of Consecutive Years of Dividend Growth 20

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $3,129,192,000
Total Current Liabilities $1,536,311,000
Long-Term Debt $1,874,132,000
Total Assets $5,885,509,000
Intangible Assets $1,014,598,000
Total Liabilities $3,842,796,000
Shares Outstanding (Diluted Average) 60,416,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $10.99
Dec2015 $11.58
Dec2014 $11.45
Dec2013 $11.13
Dec2012 $9.52
Dec2011 $9.07
Dec2010 $6.93
Dec2009 $5.62
Dec2008 $5.97
Dec2007 $4.94
Dec2006 $4.24
Dec2005 $3.78
Dec2004 $3.13
Dec2003 $2.46
Dec2002 $2.24
Dec2001 $1.84
Dec2000 $2.05
Dec1999 $1.92
Dec1998 $2.44
Dec1997 $2.27
Dec1996 $2.02

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $11.16
Dec2015 $11.01
Dec2014 $10.36
Dec2013 $9.36
Dec2012 $8.13
Dec2011 $7.12
Dec2010 $5.94
Dec2009 $5.27
Dec2008 $4.87
Dec2007 $4.11
Dec2006 $3.52
Dec2005 $3.01
Dec2004 $2.53
Dec2003 $2.19
Dec2002 $2.07
Dec2001 $2.02
Dec2000 $2.12

Recommended Reading:

Other ModernGraham posts about the company

Dividend Growth Stocks for Intelligent Investors – July 2016
Dividend Growth Stocks for Intelligent Investors – June 2016
Dividend Growth Stocks for Intelligent Investors – February 2016
19 Best Stocks For Value Investors This Week – 1/9/16
W W Grainger Inc Valuation – January 2016 Update $GWW

Other ModernGraham posts about related companies

Xylem Inc Valuation – January 2017 $XYL
Clarcor Inc Valuation – Initial Coverage $CLC
Caterpillar Inc Valuation – August 2016 $CAT
Regal Beloit Corp Valuation – August 2016 $RBC
Snap-on Incorporated Valuation – August 2016 $SNA
AGCO Corporation Valuation – August 2016 $AGCO
PACCAR Inc Valuation – August 2016 $PCAR
W.W. Grainger Inc Valuation – August 2016 $GWW
Allegion PLC Valuation – August 2016 $ALLE
Xylem Inc Valuation – August 2016 $XYL

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

W.W. Grainger Inc Valuation – August 2016 $GWW

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how W.W. Grainger Inc (GWW) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): W.W. Grainger, Inc. (Grainger) is a distributor of maintenance, repair and operating (MRO) supplies and other related products and services. The Company offers its products and services to businesses and institutions in the United States and Canada, with presence also in Europe, Asia and Latin America. Grainger operates through two segments: the United States and Canada. The United States segment offers a selection of maintenance, repair and operating supplies, and other related products and services. The Canada segment includes Acklands – Grainger Inc. (Ackland – Grainger), which is a distributor of industrial and safety supplies. The Company’s others businesses include The Fabory Group (Fabory), MonotaRO Co. (MonotaRO), Grainger Mexico and Zoro Tools, Inc. (Zoro). Fabory is a European distributor of fasteners, tools and industrial supplies. Zoro is an online distributor of MRO products serving businesses and consumers through its Website, Zoro.com.

GWW Chart

GWW data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of GWW – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $13,810,221,213 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.94 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 105.44% Pass
6. Moderate PEmg Ratio PEmg < 20 20.55 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.58 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.94 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.14 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

GWW value chart August 2016

EPSmg $11.14
MG Growth Estimate 5.57%
MG Value $218.69
Opinion Fairly Valued
MG Grade B+
MG Value based on 3% Growth $161.53
MG Value based on 0% Growth $94.69
Market Implied Growth Rate 6.03%
Current Price $228.97
% of Intrinsic Value 104.70%

W W Grainger Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $8.13 in 2012 to an estimated $11.14 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 6.03% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into W W Grainger Inc revealed the company was trading above its Graham Number of $93.2. The company pays a dividend of $4.73 per share, for a yield of 2.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 20.55, which was below the industry average of 20.76, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-10.45.

W W Grainger Inc performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

GWW charts August 2016

Net Current Asset Value (NCAV) -$10.45
Graham Number $93.20
PEmg 20.55
Current Ratio 1.94
PB Ratio 6.58
Current Dividend $4.73
Dividend Yield 2.07%
Number of Consecutive Years of Dividend Growth 20

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $3,190,262,000
Total Current Liabilities $1,641,344,000
Long-Term Debt $1,765,809,000
Total Assets $5,964,804,000
Intangible Assets $1,027,630,000
Total Liabilities $3,830,901,000
Shares Outstanding (Diluted Average) 61,302,000

Earnings Per Share History

Next Fiscal Year Estimate $10.93
Dec2015 $11.58
Dec2014 $11.45
Dec2013 $11.13
Dec2012 $9.52
Dec2011 $9.07
Dec2010 $6.93
Dec2009 $5.62
Dec2008 $5.97
Dec2007 $4.94
Dec2006 $4.24
Dec2005 $3.78
Dec2004 $3.13
Dec2003 $2.46
Dec2002 $2.24
Dec2001 $1.84
Dec2000 $2.05
Dec1999 $1.92
Dec1998 $2.44
Dec1997 $2.27
Dec1996 $2.02

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $11.14
Dec2015 $11.01
Dec2014 $10.36
Dec2013 $9.36
Dec2012 $8.13
Dec2011 $7.12
Dec2010 $5.94
Dec2009 $5.27
Dec2008 $4.87
Dec2007 $4.11
Dec2006 $3.52
Dec2005 $3.01
Dec2004 $2.53
Dec2003 $2.19
Dec2002 $2.07
Dec2001 $2.02
Dec2000 $2.12

Recommended Reading:

Other ModernGraham posts about the company

Dividend Growth Stocks for Intelligent Investors – July 2016
Dividend Growth Stocks for Intelligent Investors – June 2016
Dividend Growth Stocks for Intelligent Investors – February 2016
19 Best Stocks For Value Investors This Week – 1/9/16
W W Grainger Inc Valuation – January 2016 Update $GWW

Other ModernGraham posts about related companies

Xylem Inc Valuation – August 2016 $XYL
Rockwell Automation Inc Valuation – July 2016 $ROK
Roper Technologies Inc Valuation – July 2016 $ROP
Eaton Corp Valuation – July 2016 $ETN
Parker-Hannifin Corp Valuation – July 2016 $PH
Dover Corporation Valuation – July 2016 $DOV
Fastenal Company Valuation – July 2016 $FAST
Deere & Company Valuation – June 2016 $DE
A.O.Smith Corporation Valuation – June 2016 $AOS
Ingersoll-Rand PLC Valuation – May 2016 $IR

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

W W Grainger Inc Valuation – January 2016 Update $GWW

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how W W Grainger Inc (GWW) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): W.W. Grainger, Inc. is a distributor of maintenance, repair and operating (MRO) supplies and other related products and services. The Company offers its products and services to businesses and institutions in the United States and Canada, with presence also in Europe, Asia and Latin America. It operates in two segments: the United States and Canada. The United States business offers a selection of maintenance, repair and operating supplies and other related products and services. Acklands – Grainger is a distributor of industrial and safety supplies that distributes tools, fasteners, safety supplies, instruments, welding and shop equipment, among others. Other businesses include Zoro, the single channel online business in the United States, and operations in Europe, Asia and Latin America. The Company provides customers with a range of options for finding and purchasing products, utilizing sales representatives, contact centers, direct marketing materials, catalogs and e-commerce.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of GWW – January 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $12,420,571,558 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.00 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 124.09% Pass
6. Moderate PEmg Ratio PEmg < 20 17.92 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.42 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.00 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.93 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

GWW value Chart January 2016

EPSmg $10.94
MG Growth Estimate 8.05%
MG Value $269.26
Opinion Undervalued
MG Value based on 3% Growth $158.68
MG Value based on 0% Growth $93.02
Market Implied Growth Rate 4.71%
Current Price $196.09
% of Intrinsic Value 72.82%

W W Grainger Inc qualifies for both the Enterprising Investor and the more conservative Defensive Investor.  The Defensive Investor is only initially concerned by the high PB ratio while the Enterprising Investor has no initial concerns.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $7.12 in 2011 to an estimated $10.94 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.71% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on W W Grainger Inc (GWW)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

GWW Charts January 2016

Net Current Asset Value (NCAV) -$5.23
Graham Number $98.09
PEmg 17.92
Current Ratio 2.00
PB Ratio 5.42
Dividend Yield 2.29%
Number of Consecutive Years of Dividend Growth 20

 

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Sep15
Total Current Assets $3,104,686,000
Total Current Liabilities $1,549,197,000
Long-Term Debt $1,450,624,000
Total Assets $5,807,153,000
Intangible Assets $1,305,834,000
Total Liabilities $3,445,902,000
Shares Outstanding (Diluted Average) 65,289,000

Earnings Per Share History

Next Fiscal Year Estimate $11.37
Dec14 $11.45
Dec13 $11.13
Dec12 $9.52
Dec11 $9.07
Dec10 $6.93
Dec09 $5.62
Dec08 $5.97
Dec07 $4.94
Dec06 $4.24
Dec05 $3.78
Dec04 $3.13
Dec03 $2.46
Dec02 $2.24
Dec01 $1.84
Dec00 $2.05
Dec99 $1.92
Dec98 $2.44
Dec97 $2.27
Dec96 $2.02

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $10.94
Dec14 $10.36
Dec13 $9.36
Dec12 $8.13
Dec11 $7.12
Dec10 $5.94
Dec09 $5.27
Dec08 $4.87
Dec07 $4.11
Dec06 $3.52
Dec05 $3.01
Dec04 $2.53
Dec03 $2.19
Dec02 $2.07
Dec01 $2.02
Dec00 $2.12
Dec99 $2.01

Recommended Reading:

Other ModernGraham posts about the company

5 Undervalued Companies for Enterprising Investors Near 52 Week Lows – November 2015
Dividend Growth Stocks for the Intelligent Investor – November 2015
5 Undervalued Companies for Enterprising Investors Near 52 Week Lows – October 2015
8 Best Stocks For Value Investors This Week – 10/13/15
Dividend Growth Stocks for the Intelligent Investor – October 2015

Other ModernGraham posts about related companies

Deere & Company Valuation – January 2016 Update $DE
Cummins Inc Valuation – December 2015 Update $CMI
Dover Corp Valuation – December 2015 Update $DOV
Fastenal Co Valuation – November 2015 Update $FAST
Pentair PLC Valuation – November 2015 Update $PNR
A.O. Smith Corp Valuation – November 2015 Update $AOS
Danaher Corporation Valuation – November 2015 Update $DHR
AGCO Corporation Valuation – November 2015 Update $AGCO
Snap-on Inc. Valuation – November 2015 Update $SNA
Joy Global Inc. Valuation – November 2015 Update $JOY

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

W.W. Grainger Inc. Analysis – October 2015 Update $GWW

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – September 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how W.W. Grainger Inc. (GWW) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): W.W. Grainger, Inc. is a distributor of maintenance, repair and operating (MRO) supplies and other related products and services. The Company offers its products and services to businesses and institutions in the United States and Canada, with presence also in Europe, Asia and Latin America. It operates in two segments: the United States and Canada. The United States business offers a selection of maintenance, repair and operating supplies and other related products and services. Acklands – Grainger is a distributor of industrial and safety supplies that distributes tools, fasteners, safety supplies, instruments, welding and shop equipment, among others. Other businesses include Zoro, the single channel online business in the United States, and operations in Europe, Asia and Latin America. The Company provides customers with a range of options for finding and purchasing products, utilizing sales representatives, contact centers, direct marketing materials, catalogs and e-commerce.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[level-mg-stocks-screens-subscriber]

Downloadable PDF version of this valuation:

ModernGraham Valuation of GWW – October 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $14,690,678,514 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.37 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 126.73% Pass
6. Moderate PEmg Ratio PEmg < 20 20.10 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.96 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.37 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.54 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

GWW value Chart October 2015

EPSmg $11.08
MG Growth Estimate 8.33%
MG Value $278.77
Opinion Fairly Valued
MG Value based on 3% Growth $160.61
MG Value based on 0% Growth $94.15
Market Implied Growth Rate 5.80%
Current Price $222.67
% of Intrinsic Value 79.88%

W.W. Grainger Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $7.12 in 2011 to an estimated $11.08 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 5.8% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on W.W. Grainger Inc. (GWW)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

GWW Charts October 2015

Net Current Asset Value (NCAV) $10.66
Graham Number $110.11
PEmg 20.10
Current Ratio 3.37
PB Ratio 4.96
Dividend Yield 1.98%
Number of Consecutive Years of Dividend Growth 20

 

[/level-mg-stocks-screens-subscriber]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $3,523,746,000
Total Current Liabilities $1,047,102,000
Long-Term Debt $1,348,642,000
Total Assets $5,826,909,000
Intangible Assets $961,252,000
Total Liabilities $2,806,394,000
Shares Outstanding (Diluted Average) 67,317,000

Earnings Per Share History

Next Fiscal Year Estimate $11.77
Dec14 $11.45
Dec13 $11.13
Dec12 $9.52
Dec11 $9.07
Dec10 $6.93
Dec09 $5.62
Dec08 $5.97
Dec07 $4.94
Dec06 $4.24
Dec05 $3.78
Dec04 $3.13
Dec03 $2.46
Dec02 $2.24
Dec01 $1.84
Dec00 $2.05
Dec99 $1.92
Dec98 $2.44
Dec97 $2.27
Dec96 $2.02
Dec95 $1.82

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $11.08
Dec14 $10.36
Dec13 $9.36
Dec12 $8.13
Dec11 $7.12
Dec10 $5.94
Dec09 $5.27
Dec08 $4.87
Dec07 $4.11
Dec06 $3.52
Dec05 $3.01
Dec04 $2.53
Dec03 $2.19
Dec02 $2.07
Dec01 $2.02
Dec00 $2.12
Dec99 $2.14

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Machinery Industry – August 2015
The 9 Best Stocks For Value Investors This Week – 7/18/15
W.W. Grainger Inc. Analysis – July 2015 Update $GWW
5 Undervalued Companies for the Enterprising Investor Near 52 Week Lows – April 2015
27 Companies in the Spotlight This Week – 4/4/15

Other ModernGraham posts about related companies

My Personal Holdings: Deere & Company – October 2015 Update $DE
Allegion PLC Analysis – September 2015 Update $ALLE
Parker Hannifin Corporation Analysis – September 2015 Update $PH
Roper Technologies Inc. Analysis – September 2015 Update $ROP
My Personal Holdings: Dover Corporation – September 2015 Update $DOV
Xylem Inc. Analysis – August 2015 Update $XYL
Cummins Inc. Analysis – August 2015 Update $CMI
Fastenal Company Analysis – August 2015 Update $FAST
A.O. Smith Corporation Analysis – Initial Coverage $AOS
The Best Companies of the Machinery Industry – August 2015

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

W.W. Grainger Inc. Analysis – July 2015 Update $GWW

Grainger_logo

W.W. Grainger passes the initial requirements of the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, it has grown its EPSmg (normalized earnings) from $7.12 in 2011 to an estimated $11.09 for 2015. This level of demonstrated growth supports the market’s implied estimate for annual earnings growth of 6.22% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 11.14% annually. The ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, but still returns an estimate of intrinsic value within a margin of safety relative to the current price, indicating that W.W. Grainger is fairly valued at the present time.

Read the full valuation on Guru Focus!


Disclaimer: The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

W.W. Grainger Inc. Quarterly Valuation – March 2015 $GWW

Grainger_logo

W.W. Grainger performs well in the ModernGraham model, and is suitable for Enterprising Investors. The Defensive Investor is concerned with the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns. As a result, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $5.94 in 2010 to $10.36 for 2014. This is a strong level of demonstrated growth, which is well above the market’s implied estimate of 7.07% annual earnings growth over the next 7-10 years. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still estimates a growth figure much higher than the market’s implied rate. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time.

Be sure to check out previous ModernGraham valuations of W.W. Grainger Inc. (GWW) for a greater perspective!

Read the full valuation on Seeking Alpha!

GWW Chart

GWW data by YCharts

Disclaimer: The author did not hold a position in W.W. Grainger Inc. (GWW) at the time of publication and had no intention of changing that position within the next 72 hours. Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

W.W. Grainger Inc. Quarterly Valuation – December 2014 $GWW

Grainger_logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Dow Components to Research – December 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how W.W. Grainger Inc. (GWW) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): W.W. Grainger, Inc., is a distributor of maintenance, repair and operating (MRO) supplies and other related products and services used by businesses and institutions primarily in the United States and Canada . The Company operates in two segments: United States and Canada. Other businesses include operations in Europe, Asia, Latin America and other United States operations. In August 2013, W.W. Grainger Inc acquired E&R Industrial Sales, Inc. In December 2013, the Company announced that it has completed the acquisition of Safety Solutions Inc. In September 2014, W.W. Grainger Inc’s Acklands-Grainger Inc completes acquisition of WFS Enterprises Inc.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $257.81
MG Value $341.48
MG Opinion Fairly Valued
Value Based on 3% Growth $154.09
Value Based on 0% Growth $90.33
Market Implied Growth Rate 7.88%
Net Current Asset Value (NCAV) $16.12
PEmg 24.26
Current Ratio 2.63
PB Ratio 5.25

Balance Sheet – September 2014

Current Assets $3,044,000,000
Current Liabilities $1,157,000,000
Total Debt $385,000,000
Total Assets $5,326,000,000
Intangible Assets $1,003,000,000
Total Liabilities $1,930,000,000
Outstanding Shares 69,100,000

Earnings Per Share

2014 (estimate) $12.25
2013 $11.13
2012 $9.52
2011 $9.07
2010 $6.93
2009 $5.62
2008 $5.97
2007 $4.94
2006 $4.24
2005 $3.78
2004 $3.13

Earnings Per Share – ModernGraham

2014 (estimate) $10.63
2013 $9.36
2012 $8.13
2011 $7.12
2010 $5.94
2009 $5.27

Dividend History

Conclusion:

W.W. Grainger Inc. qualifies for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $5.94 in 2010 to an estimated $10.63 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 7.88% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.

Be sure to check out previous ModernGraham valuations of W.W. Grainger Inc. (GWW) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on W.W. Grainger Inc. (GWW)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in W.W. Grainger Inc. (GWW) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

W.W. Grainger Inc. Quarterly Stock Valuation – September 2014 $GWW

Grainger_logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – September 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how W.W. Grainger (GWW) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): W.W. Grainger, Inc., is a distributor of maintenance, repair and operating (MRO) supplies and other related products and services used by businesses and institutions primarily in the United States and Canada . The Company operates in two segments: United States and Canada. Other businesses include operations in Europe, Asia, Latin America and other United States operations. In August 2013, W.W. Grainger Inc acquired E&R Industrial Sales, Inc. In December 2013, the Company announced that it has completed the acquisition of Safety Solutions Inc. In September 2014, W.W. Grainger Inc’s Acklands-Grainger Inc completes acquisition of WFS Enterprises Inc.
GWW Chart

GWW data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period -PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $250.30
MG Value $341.53
MG Opinion Undervalued
Value Based on 3% Growth $155.69
Value Based on 0% Growth $91.27
Market Implied Growth Rate 7.41%
Net Current Asset Value (NCAV) $15.84
PEmg 23.31
Current Ratio 2.69
PB Ratio 5.09

Balance Sheet – 6/30/2014

Current Assets $3,030,600,000
Current Liabilities $1,126,500,000
Total Debt $432,500,000
Total Assets $5,311,300,000
Intangible Assets $1,015,300,000
Total Liabilities $1,947,000,000
Outstanding Shares 68,400,000

Earnings Per Share

2014 (estimate) $12.25
2013 $11.29
2012 $9.69
2011 $9.25
2010 $7.08
2009 $5.75
2008 $6.04
2007 $4.94
2006 $4.24
2005 $3.78
2004 $3.13

Earnings Per Share – ModernGraham

2014 (estimate) $10.74
2013 $9.52
2012 $8.28
2011 $7.26
2010 $6.04
2009 $5.33

Dividend History
GWW Dividend Chart

GWW Dividend data by YCharts

Conclusion:

W.W. Grainger Inc. qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  From a valuation perspective, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $6.04 in 2010 to an estimated $10.74 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 7.41% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out the previous ModernGraham valuations of W.W. Grainger Inc. (GWW) for more perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on W.W. Grainger Inc. (GWW)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in W.W. Grainger Inc. (GWW) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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