W.W. Grainger - Growth And Income - Zacks Rank Buy

W.W. Granger Inc. (GWW) recently reported strong second-quarter results. The company had year-over-year sales growth of 16% and EPS growth of 35%. The company easily beat analyst expectations.

Additionally, management increased its EPS guidance for full-year 2010. The company indicated that it was experiencing stronger organic sales growth than it did earlier this year, due in part to the Gulf of Mexico oil spill clean up..

Business

W.W. Grainger Inc. (GWW) is a leading supplier of facilities maintenance products and other related products and services in the US, Canada, Japan, and Mexico.

Grainger serves over 1.8 million businesses through a 600-branch network, 18 distribution centers, 2,000 sales reps, service centers, catalogs, other direct marketing materials, and the internet.

Growth and Income

The company is expected to grow its earnings per share 18% in 2010, 14% in 2011, and 14% over the long term. W.W. Grainger's trailing 12-month return on equity was 19.4%, and the stock also offers shareholders a dividend yield of 2.0%.

This Zacks #2 Rank stock trades at 16.6x 2010 consensus EPS estimates and 14.6x 2011 consensus EPS estimates.

Second-Quarter Results

On July 15, the company reported second-quarter financial results. The company had net sales of $1.78 billion, an increase of 16.3% compared to the year-ago quarter.

Grainger earned $1.65 per share, up 35.3% over the second quarter of 2009. The company also beat the Zacks Consensus Estimate by 15 cents, or 10.0%. GWW has beaten the Zacks Consensus in four out of the last five quarters (it met estimates in the other quarter) by an average of 8.4%.

Chairman, president, and CEO Jim Ryan said, "We are very encouraged by the strong organic growth in the quarter and the resulting earnings power demonstrated by our business. Our businesses in the US and Canada, along with the majority of our international operations, contributed to a solid quarter for both sales and earnings."

Guidance

The company's strong execution and results in the first half of 2010 gave management the confidence to raise its full-year 2010 guidance. It now expected sales growth of 12% to 14% and earnings per share of $6.10-$6.40, excluding unusual items. Management's previous guidance called for sales growth of 9% to 12% and EPS of $5.70-$6.10.

Estimates

In the last week, the Zacks Consensus Estimate for 2010 is up 26 cents, or 4.3%, to $6.35. The Zacks Consensus Estimate for 2011 is up 20 cents, or 2.8%, to $7.24.

The Chart

GWW shares are up about 22% in the last twelve months. The stock topped out $116 in April. In the last three months, the stock has lost about 10%. However, GWW appears to have established decent support in the $97-$98 area.

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