BOSTON (TheStreet) -- W.W. Grainger (GWW) - Get Report is a distributor of facility-maintenance products. Humdrum, yes.

TheStreet.com

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

TST Recommends

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.

Last spring, Grainger assumed full ownership of

Asia Pacific Brands

, previously a joint venture, increasing its exposure to the Indian market. Then, Grainger boosted its position in Japanese distributor

MonotaRO

, achieving majority ownership in the fall. Those acquisitions were financed with cash, minimizing balance-sheet damage. Since the year-earlier quarter, cash grew 16% to $460 million as debt declined marginally to $525 million. Grainger's 0.2 debt-to-equity ratio is less than the industry average.

The company's three-year growth rates are in the low single digits, which hinders its overall score. However, our quantitative equity model awards Grainger a financial strength of 9.6 (out of 10) and a performance score of 9.2. Of 15 analysts surveyed by

Bloomberg

, 11 recommend purchasing Grainger and the remainder advise holding the shares. Though the stock trades at a premium to the distributor peer group, it offers safety, income and steady growth. We rate Grainger a "buy" and believe there are takings in tedium.

-- Reported by Jake Lynch in Boston.