WW Grainger Inc (GWW)

Conclusion

W.W. Grainger distributes maintenance, repair and operating products and services, mainly in North America, Japan and the United Kingdom, through sales representatives, branches and ecommerce channels. At a price of 1,447.67 USD on 2026-11-09, the market capitalisation is 68.2 billion USD.

The verdict is overvalued. The fair value band runs from 695.78 to 1,043.66 USD with a midpoint of 869.72 USD, a margin of safety of -39.9% at the current price. Today's multiples sit above their own ten-year medians: the price-to-earnings ratio is 31.5 against a median of 25.6, a premium of 23.2%, and the enterprise value to EBITDA ratio is 20.9 against 15.1, a premium of 38.5%. The discounted cash flow gives 707.55 USD per share, and the fair value from historical multiples is 1,031.89 USD. The reverse DCF implies revenue growth of 16.9% a year, while revenue grew 8.8% a year over five years.

What holds the case up is the quality of the business: return on invested capital of 32.7% against a weighted cost of capital of 9.4%, a net debt to EBITDA ratio of 0.68, and seven of nine Piotroski points. What would break it is valuation: the price-to-sales ratio sits 95.1% above its median, and the three-year earnings per share growth of 5.5% is well below the five-year rate of 22.4%.

Financial health

Financial strength is green, because the balance sheet passes every test in the assessment. The current ratio is 2.61, the quick ratio 1.53, net debt to EBITDA 0.68, debt to equity 0.65 and interest coverage 37.7 on a trailing basis. The Altman Z-score is 13.22, in the safe zone, although that model was designed for manufacturers and Grainger is a distributor. Insolvency risk is low, about 0.2% by the estimate of the Ohlson model over one to two years, based on figures as of 2025-12-31. Debt has fallen over the last five years, with a debt-versus-revenue growth figure of -4.9%.

Earnings quality

Earnings quality is green, with the Piotroski score of 7 out of 9 as the main support. Free cash flow conversion is 79.4% on a trailing basis and 77.7% over five years, which is assessed as neutral. The accrual ratio is -3.5%, meaning cash generation runs ahead of reported earnings. Stock-based compensation is 0.4% of revenue, and free cash flow after it is 1.64 billion USD. The share count has fallen at a compound rate of 2.2% a year over five years, which points to buybacks. The Beneish M-score is not available. Over the last eight quarters the company beat earnings estimates five times and missed three times, with an average surprise of 4.1%. Estimates for the current year were revised up by 1.8% over 90 days, and for next year by 1.2%, with expected earnings growth of 9.9%.

Profitability

Profitability is green. The gross margin is 39.4% against a ten-year median of 38.9%, the operating margin 15.8% against 11.5%, and the net margin 11.2% against 7.7%. Operating margin stability is 19.6%. Return on invested capital is 32.7% against a weighted cost of capital of 9.4%, a gap the model reads as creating value; the five-year median of return on invested capital is 34.0%. Return on equity is 45.7%, but the DuPont split shows that leverage does much of the work: a net margin of 9.5%, an asset turnover of 2.00 and an equity multiplier of 2.40, all as of 2025-12-31. Return on equity therefore flatters the underlying economics more than return on invested capital does.

Growth

Growth is green. Revenue has grown at a compound rate of 5.6% over three years, 8.8% over five years and 6.1% over ten years, and it rose in all ten of the last ten years. Earnings per share grew 5.5% a year over three years, 22.4% over five and 11.8% over ten, so the three-year figure is much weaker than the longer ones. Free cash flow per share grew 9.6% over three years, 10.0% over five and 11.1% over ten. Consensus expects earnings growth of 9.9% next year, which is consistent with the long-run record rather than the recent three-year pace.

Valuation

Valuation is red. Every multiple is above its ten-year median: the price-to-earnings ratio by 23.2%, enterprise value to EBITDA by 38.5%, price to free cash flow by 49.6%, price to sales by 95.1% and price to book by 18.9%. The discounted cash flow gives 707.55 USD per share at a discount rate of 9.65%, with growth of 8.75% over the first stage and 2.5% in perpetuity; the terminal value accounts for 54.6% of that figure. The fair value from historical multiples is 1,031.89 USD, and the fair value band is 695.78 to 1,043.66 USD around a midpoint of 869.72 USD. These are order-of-magnitude estimates built on fixed assumptions, a 5% equity risk premium and capped growth, not price targets. The reverse DCF implies growth of 16.9% a year, against 8.8% revenue growth and 10.0% free cash flow per share growth over five years. The dividend yield is 0.74%, the forward yield 0.71%, and the payout on free cash flow 29.5%.

Risks

The main risk is valuation: a price-to-sales ratio 95.1% above its median and a reverse DCF requiring 16.9% growth leave little room if growth slows toward the five-year revenue rate of 8.8%. Free cash flow conversion of 77.7% over five years is only neutral, so any slippage would weigh on the earnings quality score. Three-year earnings per share growth of 5.5% shows how uneven profit growth has been. The Beneish M-score is not available, and the analysis has no debt maturity schedule and no revenue split by segment, so refinancing timing and the mix of growth cannot be checked. The Altman Z-score is calibrated for manufacturers, and the Ohlson estimate relies on figures from 2025-12-31, so neither gives a full picture of a distributor's current risk.