Publication Date: 26 Nov 2018 - By Robert P.By Robert P.
Equity FundamentalEquityUSAIndustry
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QualitativeConcerns
Grainger faces intense competition from Amazon. Amazon has entered the market focused on mostly tail (less frequent) purchases but should continue to rapidly take share, grow delivery costs, and increase transparency.
Berkshire Hathaway has entered the market providing services to small distributors. The services should increase convenience and pricing transparency while allowing small distributors to slow the loss of market share to Grainger.
Revenue and volume comps are more difficult going forward in an uncertain macros environment.
FundamentalConcerns
Gross margins have already started to show pressure but competition and pricing problems are only increasing.
EBITDA margins are also under long term pressure with a long way to fall compared to Amazon. Grainger has cut SG&A to improve margins in the short term but increased shipping and fuel costs could be a headwind.
Cash flow has recently started to deteriorate despite stretching payables. OCF was down in the most recent quarter.
ROIC is in a downward trend with leverage increasing.
Valuation appears stretched with plenty of downside.