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Stock Strategist

Market’s Too Pessimistic on Grainger

We share some concerns about the Amazon threat but think they’re overblown.

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After  Grainger’s (GWW) pricing actions caused management to reset market expectations last quarter, the narrow-moat industrial distributor’s second-quarter performance slightly exceeded our margin expectations.

We now forecast the company to generate a 10.4% adjusted operating margin in 2017 versus our previous 10.2% estimate; however, our increased estimate is still at the low end of management’s guidance range. We have not materially changed any of our longer-term key valuation assumptions, and we are therefore maintaining our $202 fair value estimate.

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Brian Bernard does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.