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W.W. Grainger (GWW) Stock Analysis
W.W. Grainger Dividend
The W.W. Grainger (GWW) dividend has been paid continuously since 1971 and increased for 52 consecutive years; qualifying the company as a Dividend King, Dividend Aristocrat, and Dividend Champion.
Current Dividend Annualized: $7.44
W.W. Grainger (GWW) Intrinsic Value – Margin of Safety Analysis
(updated November 2023)
Normalized Diluted Earnings Per Share (TTM): $35.86
Free Cash Flow Per Share (TTM): $28.22
Cash Flow From Operations (CFO) Per Share (TTM): $35.49
Estimated Intrinsic Value: $600
Target Buy Price Based on Required Margin of Safety = $545
(Required Margin of Safety Based On Risk Stability Grade:
A = 10%, B = 20%, C = 40%, D = 60%, F = 80%)
Target SELL Price Based on Estimated Intrinsic Value = $690
(Allow Overvaluation Adjusted by Risk Stability Grade:
A = 20%, B = 15%, C = 10%, D = 5%, F = 0%)
Risk / Stability Grade: A
A grade indicates a quality company with a strong balance sheet, high earnings quality, and a positive business environment. These stocks require the slimmest margin of safety within the stock universe.
B grade indicates a company with a good balance sheet, good earning quality, and a stable business environment. The margin of safety required should be greater than stocks with an A grade but less than the average stock.
C grade indicates a company with a sufficient balance sheet, at least average earnings quality, and a reasonably stable business environment. The margin of safety required is greater than A & B stocks, but less than D & F stocks.
D grade indicates a company in good standing but has issues that could affect its stability and long term risks. D rated stocks should require a large margin of safety when purchased.
F grade indicates a company with significant issues that are currently affecting its stability and long term risks. Require an extremely large margin of safety for F rated stocks when purchased.
Financial Risk Grade: A
A grade indicates an extremely low probability of a dividend cut. This rating is reserved for companies with strong balance sheets and/or excellent dividend histories.
B grade indicates a very low probability for a dividend cut.
C grade indicates a low probability for a dividend cut and/or average safety risk.
D grade indicates there are issues that should be considered concerning future dividend payments.
F grade indicates serious dividend safety risks. Investors should complete comprehensive due diligence before investing.
Business Quality Grade: A
A grade indicates earnings quality is high or far above average.
B grade indicates earnings quality is good and/or above average.
C grade indicates earnings quality is acceptable or average.
D grade indicates earnings quality is poor and requires thoughtful due diligence.
F grade indicates the quality of the earnings is poor or far below average requiring serious due diligence.
Earnings Report: 9/30/23
AAAMP Portfolios Position Disclosures:
Dividend Growth & Income (DGI) – None
Treasure Trove Dividend (TTD) – None
Global Dividend Value (GDV) – None
Global Conservative Income (GCI) – None
Global Value (GV) – None
Global Value Aggressive (GVA) – None
Global High Yield (GHY) – None
Industry: Industrial Distribution
W.W. Grainger distributes approximately 1.5 million maintenance, repair, and operating products that are sourced from over 4,500 suppliers.
The company serves about 5 million customers through its online and electronic purchasing platforms, vending machines, catalog distribution, and network of over 300 global branches.
In recent years, Grainger has invested in its e-commerce capabilities and is the 11th-largest e-retailer in North America.
SWOT Analysis For W.W. Grainger
W.W. Grainger has three distribution network strategies that provide competitive advantages: Broad and deep supply chain services, value-added information, and convenient multi-channel ordering. According to the company they “can reach more than 95 percent of customers via next day ground transportation”.
The company is an important channel for its 4,500 suppliers and 5 million customers. Its size and reputation allow it to provide value to both as well as extract above average profits for itself.
Large customers in particular need the confidence that they can obtain the right product at the right location and on time. GWW has the advantage of having the ability to provide products and services on these terms better than its competitors.
The W.W. Grainger model relies less on company store footprint and more on online sales. While this is more cost effective, it can potentially have a lower customer retention percentage. For example, its closest competitor, Fastenal, has eight times the number of locations as W.W. Grainger.
GWW is embarking on a strategy to increase volume by lowering profit margins. The hope is to sacrifice short term profits for long term gains in gaining market share. Obviously there is some risk to this strategy.
W.W. Grainger is making large investments into improving its online proficiency and revamp its distribution network to better meet the needs of changing consumer desires. A highly fragmented MRO industrial distribution market means Grainger’s #1 U.S. position (6% market share) has plenty of room to grow.
W.W. is in an outstanding position to grow its 3% global market (550 billion) share for many years. Its online sales reduce costs and now represent about 65% of their total sales.
A growing concentration of large customers, which are more likely to negotiate prices can be a headwind to gross margins. In addition, e-commerce businesses such as Amazon could disrupt the industrial distribution industry, taking market share and pressuring Grainger’s margins.
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While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.