In its financial results for the second quarter announced this morning, W.W. Grainger, Inc. (NYSE:GWW) delivered EPS of $3.27, which was $0.22 higher than analyst’s estimates, while revenues of $2.52 billion were in line with the expectations. The generally positive results came despite a tough economic environment and softness in sales and gross margins weighing on the industrial economy. While sales in the United States increased by 2% in the second quarter on a year-over-year basis, sales in Canada declined by 9% in U.S. dollar terms. The reduction in gross profit margins was 0.7 percentage points for the U.S. and 1.1 percentage points for the Canadian segment. W.W. Grainger, Inc. (NYSE:GWW) now expects a 0% to 2% sales growth for the full year and an EPS in the $12.00 to 12.50 range, as opposed to its previous outlook of 1% to 4% sales growth and an EPS range of $12.25 to $12.95. Nonetheless, shares are up slightly in morning trading following the earnings release and updated fiscal year 2015 guidance.
Professional money managers have been bullish on W.W. Grainger, Inc. (NYSE:GWW) of late. During the first three months of the year, a total of 23 funds among those that we track, had invested about $998.24 million in the company, compared to 22 firms with $720.52 million in holdings at the end of last year. The investments rose despite a 9.03% dip in W.W. Grainger, Inc. (NYSE:GWW)’s stock price during the first three months. The bullishness has not paid big dividends, as shares rose only marginally in the second quarter.
In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8000 funds in operation at present, Hedge fund experts at Insider Monkey look at the aristocrats of this group, around 700 funds. Contrary to popular belief Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge. Hedge funds managed to outperform the market on the long side of their portfolio. In fact, the 15 most popular small-cap stocks among hedge funds returned 139% since the end of August 2012 and beaten the S&P 500 Index by 81 percentage points (see the details here). This is a huge margin, which is why hedge funds’ recent W.W. Grainger, Inc. (NYSE:GWW) purchases is a strong indicator.
We also track insider activity, as it can unveil valuable insights into the company’s future prospects from the management’s lens. As far as W.W. Grainger, Inc. (NYSE:GWW) is concerned, no insider purchases have been detected this year, but prominent insider sales include that by Senior Vice President Donald MacPherson, who has disposed of some 5,700 shares since March, and Senior Vice President Court Carruthers, who sold about 14,700 shares on June 4 in multiple transactions. However, it must be noted that insider sales provide a much weaker signal than insider purchases.
Let’s move on to an in-depth analysis of hedge fund sentiment surrounding W.W. Grainger, Inc. (NYSE:GWW) before we decide whether the stock is worth investing in.
Hedge fund activity in W.W. Grainger, Inc. (NYSE:GWW)
At first quarter’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long in this stock, up from 22 funds at the end of the previous quarter. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings substantially.
According to hedge fund intelligence website Insider Monkey, David Blood and Al Gore’s Generation Investment Management had the biggest position in W.W. Grainger, Inc. (NYSE:GWW), worth close to $330.2 million, corresponding to 4.6% of its total 13F portfolio. Coming in second was Cantillon Capital Management, led by William von Mueffling, holding a $323 million position; 6.3% of its 13F portfolio was allocated to the stock. Other peers that hold long positions encompass Nigel Greig and Kenneth Cowin’s Pittencrieff Partners – Gabalex Capital, Joel Greenblatt‘s Gotham Asset Management, and Jim Simons’ Renaissance Technologies.
Now, key money managers were breaking ground themselves. The aforementioned Renaissance Technologies assembled the most outsized position in W.W. Grainger, Inc. (NYSE:GWW). Renaissance had $22.7 million invested in the company at the end of the March quarter. Dmitry Balyasny‘s Balyasny Asset Management also made a $7.1 million investment in the stock during the quarter. The other funds with brand new positions were Jacob Gottlieb’s Visium Asset Management, Chuck Royce’s Royce & Associates, and Ken Griffin’s Citadel Investment Group.
Owing to bullish hedge fund sentiment and the ability of W.W. Grainger, Inc. (NYSE:GWW)’s management to curtail expenses and deliver results better than the estimates, we believe that the company could make for a sound value investment.
Disclosure: None
