This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Boring Is Best: Under the Radar

BOSTON ( TheStreet) -- W.W. Grainger (GWW - Get Report) is a distributor of facility-maintenance products. Humdrum, yes. featured Grainger in "Under the Radar" on July 7. The flashlight and hand-tool purveyor turned out to be a lucrative investment. Its shares have appreciated 25% since the article, outpacing the Dow Jones Industrial Average and S&P 500 Index. More importantly, Grainger advanced 27% over a two-year horizon when the Russell Midcap Index fell 18%.

The stock price broke through the $100 barrier last week and recorded a 52-week high on Wednesday, following an upward revision of 2010 earnings guidance. Management now expects full-year earnings between $5.40 and $5.90 a share. Assuming the company can achieve the upper end of its target, the stock appears fairly valued at a price-to-earnings ratio of 17. Grainger pays a quarterly dividend, currently at 46 cents, and has been increasing payouts for more than 25 years, making it a Standard & Poor's Dividend Aristocrat.

But with a yield around 1.8%, it's hard to get excited about Grainger. The stock recently popped into our top 50 list, despite posting lackluster quarterly results. Fourth-quarter net income dropped 10% to $97 million, and earnings per share fell a more modest 7.3% to $1.27, cushioned by a lower share count. Revenue ascended 2.6% to $1.6 billion. Grainger's gross margin narrowed from 45% to 42%, and its operating margin tightened from 11% to 10%.

Grainger's stock is cheaper than that of comparably sized wholesaler Fastenal (FAST - Get Report) and that of tool-maker Black & Decker (BDK) on the basis of trailing and projected earnings. Black & Decker's quarterly operating margin clocked in at 7.5%, whereas Grainger's hit 10%.

Despite Grainger's shrinking profit margin, its stock rose 5.6% over the past month as the S&P 500 corrected 1.2%. What's the angle?

Grainger recently went on an acquisitions binge. Notably, it purchased Alliance Energy Solutions, which is expected to be accretive to 2010 earnings by 1 or 2 cents. Alliance performs energy audits and retro-fitting. The Energy Policy Act of 2005, recently extended until 2013, allows companies that retrofit buildings to realize a one-time tax deduction in the year the project is completed. This jibes with Grainger's existing facility-maintenance offerings and will likely offer cross-selling opportunities.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
FAST $46.79 0.00%
GWW $234.52 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs