PeterLang_7

GWW; awaiting right moment to enter long-term position

Long
NYSE:GWW   W.W. Grainger, Inc
GWW was trading at an average P/E ratio of 20-21 between in the last three years. Extremely high EPS of $15.46 in 2019 were the reason for a relatively low P/E ratio (around 19). Now, it is dangerous to determine the forward-looking P/E using the EPS of the FY 2019. Rather, should be estimated by how much the lockdown will influence the EPS of the FY 2020. Additionally, GWW is likely to recover fast because of its industry. For this reason, I expect EPS to recover fully to its upwards trend in 2021. Especially Q2’s earnings will be reduced since the lockdown forces production and GWW’s clients to shut down its activity. I expect annual EPS of 2020 to be lower than $10. If this is reflected in the share price and the P/E ratio remains on average the same as it was over the last three years, the share price could easily fall to 20*$10=$200. In a pessimistic scenario, EPS 2020 could reach lower levels such as $7, which could justify a momentary share price of 20*$7=$140. I believe that both scenarios are equally likely and that GWW will soon recover after the Corona lockdown and the annual EPS will bounce back to pre-corona levels and growth. Expecting the EPS to rise to 13 by FY 2022, the stock price is likely to reach levels around 13*$20=$260 by the end of 2021.

Trading idea

Entry price $173.3
Take profit (or hold 😉) $260
Max expected holding period 18 months
Profit 50%

I`ll buy the stock as soon as it hits $173.3. Good luck!
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