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


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.






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