Founded by William W. Grainger in Chicago in 1927, Grainger (GWW) has evolved from its roots as a wholesale electric motor sales and distribution business. In the early days, sales were made mostly through mail via post cards and catalogue orders. This Grainger catalogue, originally titled the MotorBook, has since widely expanding its product offering and has become familiar to supply ordering managers throughout North America.

Today, Grainger is the leading provider of maintenance, repair, and operating (MRO) supplies in the country. Based in Lake Forest, Illinois, it operates more than 700 branches worldwide - with 400 branches and 14 distribution centers located in the United States - and employs a global workforce of about 22,400 individuals.

Where Grainger really stands apart is how valuable it can be helping other companies streamline the process of maintaining facilities. Presenting hundreds of thousands of products to commercial clients, its vastly diverse product lineup allows customers the potential to purchase upwards of 100% of their operating supplies from a single provider. This can provide both cost and time-saving benefits. In addition, because there is such a sprawling customer mix of two million individuals, businesses, and institutions in 157 countries, times of economic weakness in one region may be partially offset by relative strength in others. This brand base affords GWW a degree of recession resistance, and we note that during the 2007-2009 downturn, Grainger shares garnered high marks for Relative Price Strength, holding up better than most stocks.

Though the company is still, of course, tied to the economic cycle, it has impressively managed to gain market share in both prosperous and poor economic times. In fact, in the last several years, Grainger has seen its market share increase at an accelerating rate compared with historical norms. This can be attributed to an unparalleled expansion in its product line, and U.S. offerings, alone, have ballooned from around 80,000 items to over 450,000 in stock products.

This massive availability of MRO supplies has solidified the Grainger brand as a market leader in what is otherwise a rather fragmented industry. GWW is involved in acquisitions from time to time, usually to introduce new product lines and extend its expertise, but it is not the focal point of its strategy. Growing its organic operations is typically the focus.

And to be sure, it is still growing at its core. Similar – yet smaller – broad-line distributers may have difficulties keeping pace with Grainger. With 70% of the industry still in the hands of these smaller players, there is ample room for a larger entity to gain market share. The in-stock product line and expanding store-front presence necessitate hefty capital investments that smaller companies simply cannot match.

Recently, the company has made substantial investments in its e-commerce platform. This channel is on pace to account for 32% of annual sales; that is up 200 basis points from 2012, thanks in part to the improved forum. We think that it should continue to grow at an accelerated pace versus other selling channels (catalogue and branch). With all three of these channels operating efficiently, it is easy to see why customers need not look far beyond Grainger for their MRO needs.

Although the dividend yield currently stands modestly below the Value Line median, it’s worth noting that Grainger has raised its payout every single year for four decades. This denotes Grainger one of 12 companies on the S&P 500 Index to achieve that venerable record, and has garnered it the distinction as a Dividend Aristocrat. In summary, GWW is a capital growth and dividend growth company, making it a suitable choice for various portfolio objectives.
Grainger is a sustainable growth story. Its balance sheet is gilt edged and its outlook is promising. It is increasingly difficult to imagine another company dethroning Grainger of its market-leading position. For more information in regard to Grainger’s prospects, as well as the particular investment merits of the stock, subscribers are encouraged to check out our full report in The Value Line Investment Survey.

At the time of this article, the author did not have positions in any of the companies mentioned.