W.W. Grainger’s common shares will need to reach $1690 to achieve average annual stock market performance of 9.0% over the next 6 years. W.W. Grainger’s stock price will need to reach $1989 by 2029 to achieve upper quartile performance. At the current price of $1008, what are market expectations regarding W.W. Grainger’s future operating performance?
Executive Summary
- Price Target Research identifies W.W. Grainger as having: very high profitability, high expected growth, above average financial strength, and instability. A big positive influence on W.W. Grainger’s valuation is its superior Growth.
- Very high valuation, above market shareholder returns. Current valuation levels are very high relative to the W.W. Grainger Peer Group. Recent market returns have outperformed the W.W. Grainger Peer Group. Total shareholder returns expected to seriously beat the overall equity market. Based on current investor expectations, W.W. Grainger shares should reach a level of $1874 by 2029 — an 11.7% per year total shareholder return. A 2029 stock price of $1690 would reflect median performance and a price of $1989 would be required to reach upper quartile performance.
- Growth has been W.W. Grainger’s biggest valuation strength. Historical growth has been very high relative to the W.W. Grainger Peer Group and forecasted growth is relatively very high. Equity Growth, EPS Growth, and Revenue Growth have been superior. These factors have buoyed market perceptions of W.W. Grainger. W.W. Grainger’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth resulting in an improving return on equity. W.W. Grainger’s consensus growth expectations are lower than historical growth.
- Pretax ROA, Return on Equity, and Pretax Margin are group leading. These factors have strengthened market perceptions of W.W. Grainger. The company has very high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
- W.W. Grainger’s risk profile is very favorable. Overall variability has been relatively low with relatively low revenue variability, only average E.P.S. variability, and above average stock price volatility. Financial Strength is relatively high and earnings’ expectations are relatively high. The debt/capital ratio has declined very significantly.
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