Of Grainger and Value

Since I write frequently about the MRO (maintenance, repair, and overhaul) distributor space, I cover companies such as Grainger (NYSE: GWW  ) , Applied IndustrialTechnology (NYSE: AIT  ) , and Fastenal (Nasdaq: FAST  ) . It's also no secret that I'm a big fan of the folks at MSC Industrial (NYSE: MSM  ) . Sooner or later, I'll also probably get around to including others, like Wesco (NYSE: WCC  ) and Genuine Parts (NYSE: GPC  ) .

But today, it's all (or at least mostly) about Grainger -- one of the very largest players in the business.

Once again, this company delivered the goods for customers and investors alike. Sales rose 10% in the fourth quarter, and further margin improvement led to a nearly 15% rise in operating income, finished off with a like increase in earnings per share.

For the most part, you can say it was business as usual for Grainger. Sales in the branch-based distribution business (that's the MRO side) rose 10%, while sales in the much smaller lab safety business (less than one-tenth the size by revenue) rose 16% as reported and 5% organically. In addition, the company's ongoing efforts to increase its business in metro areas seems to be paying off -- the company attributed about one-tenth of the quarter's growth to the effort, and the various regions saw growth ranging from 13% to 16% for the quarter.

This company is trying to move in multiple directions at once. Not only is Grainger trying to grow through market expansions and SKU additions, but it is also looking to boost share in metro areas, expand its e-commerce revenue, and slowly move into China. That's a lot of irons to have in the fire at one time, but it's also a good way to go about building share in a highly fragmented market.

I am an avowed fan of MSC Industrial, but as much as it pains me to say it, I think Grainger might just be the better value today. Not only is Grainger less exposed to the manufacturing sector, but it also simply looks a bit cheaper relative to where I see fair value based upon discounted cash flows. It's a pretty small gap (single-digit percentages), and that I have no intention of selling MSC Industrial and buying Grainger. But I gotta call 'em as I see 'em, and Grainger looks at least a little interesting today.

For more Foolishness on industrial distributors:

Fool contributor Stephen Simpson owns shares of MSC Industrial but has no financial interest in any other stocks mentioned (that means he's neither long nor short the shares). The Motley Fool has a disclosure policy.

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