W.W. Grainger, Inc.GWWNYSE

Overview Intelligence Charts News Fundamentals Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $841.15 per share(market-calibrated)

-27.0%

Upside to Fair Value

Current

$1,152.25

Pure Model

$808.45

Fair Value

$841.15

Bull Case

$971.06

Bear Case

$655.29

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

6.17%

Calibrated Growth

3.23%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $808.45.

What's Driving This Ratingfor GWW

✓

CapEx already efficient

CapEx at 2.43% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

→

Moderate revenue growth

Analyst consensus projects 5.52% revenue growth, fading to 2.25% by Year 10. Revenue reaches $26.1B (vs $17.9B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $626.41/share (15.0x terminal FCF) while exit multiple gives $990.50/share (29.9x terminal FCF). The 18x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.25% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $1,152.25, the market implies 6.17% perpetual growth — 392bps above the model's 2.25%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 60.29% indicates efficient cash generation. FCF reaches $2.8B by Year 10 (10.70% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.11

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)9.49%

Cost of Debt

Pre-tax Cost of Debt2.73%

Tax Rate25.60%

After-tax Cost of Debt2.03%

Equity Weight (E/V)94.58%

Debt Weight (D/V)5.42%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (94.58% × 9.49%) + (5.42% × 2.03%)

= 9.08%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$18.9B	$21.5B	$23.4B	$24.4B	$26.1B
EBIT	$3.1B	$3.5B	$3.9B	$4.0B	$4.3B
Tax	$801M	$908M	$988M	$1.0B	$1.1B
NOPAT	$2.3B	$2.6B	$2.9B	$3.0B	$3.2B
+ Depreciation	$232M	$263M	$286M	$299M	$319M
- Capex	$460M	$522M	$568M	$594M	$635M
- Δ NWC	$174M	$224M	$90M	$95M	$101M
Free Cash Flow	$1.9B	$2.2B	$2.5B	$2.6B	$2.8B
Discount Factor	0.917	0.770	0.647	0.544	0.419
Present Value	$1.8B	$1.7B	$1.6B	$1.4B	$1.2B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$2.8B

Terminal Growth Rate2.25%

WACC9.08%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$41.8B

PV of Terminal Value$17.5B

Exit Multiple Method

Year 10 EBITDA$4.6B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$83.4B

PV of Terminal Value$35.0B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$15.1B

PV of Terminal Value$17.5B

Enterprise Value$32.6B

(-) Net Debt$2.6B

Equity Value$30.0B

Shares Outstanding48M

Price per Share$626.41

Exit Multiple Method

PV of Projected FCFs$15.1B

PV of Terminal Value$35.0B

Enterprise Value$50.0B

(-) Net Debt$2.6B

Equity Value$47.4B

Shares Outstanding48M

Price per Share$990.50

Pure Model Fair Value

$808.45

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
7.08%	$986.93	$1,012.26	$1,042.84	$1,080.47	$1,127.93
8.08%	$874.71	$891.46	$911.08	$934.38	$962.50
9.08%	$783.53	$795.14	$808.45	$823.87	$841.93
10.08%	$707.26	$715.61	$725.02	$735.72	$747.98
11.08%	$642.16	$648.33	$655.20	$662.89	$671.57

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$655.29

-43.1% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.39

Base Case

$808.45

-29.8% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.11

Bull Case

$971.06

-15.7% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.94

Key Assumptions & Drivers• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth5.52%

Year 3 Revenue Growth6.29%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin16.53%

Tax Rate25.60%

Historical Capex / Rev2.43%

NWC / Revenue17.60%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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