An FBR Capital Markets analyst on Tuesday cut his rating on shares of W.W. Grainger Inc., saying the facilities maintenance company's stock is too expensive in light of slowing economic growth and an expectation for tougher sales comparisons for the rest of the year.
Grainger, based in Lake Forest, Ill., provides safety and security supplies, lighting and electrical products, power and hand tools, pumps and plumbing supplies, cleaning and maintenance supplies, forestry and agriculture equipment, building and home inspection supplies and vehicle and fleet parts.
Ajay Kejriwal cut the stock to "Market Perform" from "Outperform." The analyst thinks that higher restocking in end markets like building products, electronic components and aftermarket auto parts suggest a potential slowdown in growth over the next several months. It also indicates that earnings could be impacted next year as companies work through those higher inventories. Grainger supplies industrial maintenance and safety products to manufacturers and government offices.
But not all analysts share Kejriwal's cautious view. William Blair & Co. analyst Jeffrey Germanotta said that while he thinks that Grainger's rapid pace of sales improvement might slow in the near future, he remains bullish on the stock. Germanotta thinks overall economic improvement, coupled with expanding market share and benefits from new investments, share repurchases and acquisitions will all lead to strong earnings growth for the company in the fourth quarter and next year.
FBR's Kejriwal remains optimistic about the sector overall, noting that cost-cutting measures and strong financial positions should help drive growth through acquisitions even as Europe sales weaken and inventory buildup worries remain.
In morning trading, shares fell $1.37 to $115.19. The stock has risen from a 52-week low of $85.24 last October to peak at $116.80 on Monday.
