W.W. Grainger, Inc. (GWW) distributes maintenance, repair, and operating (MRO) products and services in the United States, Japan, Canada, the United Kingdom, and internationally. The company operates through two segments- High-Touch Solutions N.A. and Endless Assortment. On the other hand, WESCO International, Inc. (WCC) provides business-to-business distribution, logistics services, and supply chain solutions in the United States, Canada, and internationally. It operates through three segments- Electrical & Electronic Solutions (EES); Communications & Security Solutions (CSS); and Utility and Broadband Solutions (UBS).
The pandemic caused severe logistic disruptions worldwide, delaying several industrial construction projects. Industrial production levels are yet to reach optimal levels, but demand for industrial goods and services is increasing with the resumption of construction and infrastructure development activities.
Furthermore, lucrative policies like the Infrastructure Bill and the Build Back Better Plan are expected to help the industrial equipment industry prosper in the near term. According to Report Linker, the global industrial machinery market is projected to grow at a CAGR of 8.6% from 2021 to 2026. Supportive federal policies and overwhelming demand should drive significant profit margins for industrial equipment companies such as GWW and WCC.
GWW has gained 3.1% over the past year, while WCC has gained 9.1%. However, GWW has gained 14.8% over the past nine months, while WCC has gained 4.2%. Also, GWW has lost marginally over the past month, while WCC has lost 3.2%.
But which stock is a better buy now? Let’s find out.
On April 28, 2022, DG Macpherson, GWW’s Chairman, and CEO, said, “We continued to execute against our key growth initiatives, drive operational excellence and strengthen our culture. Despite the ongoing inflationary and supply chain challenges, we are well-positioned for a successful year.”
On the other hand, on June 1, 2022, WCC approved a new $1 billion share repurchase program, which should improve shareholder returns. Also, the company raised its adjusted EPS outlook to a range of $14.00 to $15.00.
Recent Financial Results
GWW’s net sales increased 18.3% year-over-year to $3.65 billion for the first quarter ended March 31, 2022. Its net earnings came in at $366 million, reflecting an increase of 53.8% year-over-year, while its EPS came in at $7.07, up 57.8% year-over-year. Moreover, its net cash provided by operating activities came in at $343 million, up 16.7% year-over-year.
WCC’s net sales increased 22% year-over-year to $4.93 billion for the first quarter ended March 31, 2022. Its adjusted net income came in at $189.77 million, up 156.2% year-over-year, while its adjusted EPS came in at $3.63, up 153.8% year-over-year. In addition, its adjusted EBITDA came in at $364.12 million, up 68.1% year-over-year.
Past and Expected Financial Performance
GWW’s revenue grew at a CAGR of 6.5% over the past three years. Analysts expect GWW’s revenue to increase 13.3% in the current year and 7% in the next year. The company’s EPS is expected to grow 32.9% in the current year and 11.1% in the next year. Moreover, its EPS is expected to grow 15.4% per annum over the next five years.
On the other hand, WCC’s revenue grew at a CAGR of 32.9% over the past three years. Analysts expect the company’s revenue to increase 14.1% in the current year and 4.4% in the next year. The company’s EPS is expected to grow 47% in the current year and 9.5% in the following year. Its EPS is estimated to grow 10% per annum for the next five years.
GWW’s 36.88% gross profit margin is higher than WCC’s 21.09%. Also, GWW’s 14.27% EBITDA margin is higher than WCC’s 6.72%, while GWW’s net income margin of 8.62% is higher than WCC’s 3.07%.
Furthermore, GWW’s ROE, ROA, and ROTC of 55.91%, 16.37%, and 22.83% are higher than WCC’s 15.99%, 5.54%, and 7.84%, respectively.
Thus, GWW is more profitable here.
In terms of forward EV/S, GWW is currently trading at 1.81x, higher than WCC’s 0.54x. In addition, GWW’s forward EV/EBITDA of 12.43x is 68.9% higher than WCC’s 7.36x.
Thus, WCC is a relatively affordable stock here.
GWW has an overall rating of B, equating to Buy in our proprietary POWR Ratings system. On the other hand, WCC has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
GWW has an A grade for Quality, consistent with its higher-than-industry profit margins. GWW’s trailing-twelve-month gross profit margin of 36.88% is 25% higher than the industry average of 29.51%. On the other hand, WCC has a C grade for Quality. WCC’s trailing-twelve-month gross profit margin of 21.09% is 28.5% lower than the industry average.
Both the stocks have a B grade for Growth, in sync with their robust performance in the last reported quarter.
Of the 92 stocks in the Industrial – Equipment industry, GWW is ranked #10, and WCC is ranked #38.
Federal funding and an upsurge in industrial activities are expected to bode well for GWW and WCC. However, GWW’s higher profitability and robust growth prospects make it the better buy here.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Industrial – Equipment industry here.
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GWW shares were trading at $455.27 per share on Thursday afternoon, down $17.79 (-3.76%). Year-to-date, GWW has declined -11.53%, versus a -22.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...
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