W.W. Grainger, Inc.GWWNYSE

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

DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $718.05 per share(market-calibrated)

-36.6%

Upside to Fair Value

Current

$1,132.22

Pure Model

$686.01

Fair Value

$718.05

Bull Case

$824.36

Bear Case

$555.29

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

6.68%

Calibrated Growth

3.36%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $686.01.

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 5.47% 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 $521.30/share (15.0x terminal FCF) while exit multiple gives $850.72/share (30.9x 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 $1,132.22, the market implies 6.68% perpetual growth — 443bps above the model's 2.25%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

→

Moderate cash flow conversion

Year 10 FCF/EBITDA conversion is 58.29% — acceptable but leaves room for improvement. High reinvestment needs consume a meaningful portion of operating cash flow.

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)94.49%

Debt Weight (D/V)5.51%

WACC Calculation

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

WACC = (94.49% × 9.49%) + (5.51% × 2.03%)

= 9.07%

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	$21.4B	$23.4B	$24.4B	$26.1B
EBIT	$2.7B	$3.1B	$3.3B	$3.5B	$3.7B
Tax	$694M	$786M	$856M	$895M	$957M
NOPAT	$2.0B	$2.3B	$2.5B	$2.6B	$2.8B
+ Depreciation	$231M	$262M	$286M	$299M	$319M
- Capex	$460M	$521M	$568M	$594M	$635M
- Δ NWC	$173M	$218M	$90M	$95M	$101M
Free Cash Flow	$1.6B	$1.8B	$2.1B	$2.2B	$2.4B
Discount Factor	0.917	0.771	0.648	0.544	0.420
Present Value	$1.5B	$1.4B	$1.4B	$1.2B	$992M

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$2.4B

Terminal Growth Rate2.25%

WACC9.07%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$35.4B

PV of Terminal Value$14.9B

Exit Multiple Method

Year 10 EBITDA$4.1B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$73.1B

PV of Terminal Value$30.6B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$12.7B

PV of Terminal Value$14.9B

Enterprise Value$27.5B

(-) Net Debt$2.6B

Equity Value$25.0B

Shares Outstanding48M

Price per Share$521.30

Exit Multiple Method

PV of Projected FCFs$12.7B

PV of Terminal Value$30.6B

Enterprise Value$43.3B

(-) Net Debt$2.6B

Equity Value$40.7B

Shares Outstanding48M

Price per Share$850.72

Pure Model Fair Value

$686.01

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%
7.07%	$839.42	$860.93	$886.91	$918.89	$959.23
8.07%	$743.15	$757.37	$774.03	$793.82	$817.71
9.07%	$664.85	$674.71	$686.01	$699.10	$714.43
10.07%	$599.31	$606.39	$614.38	$623.46	$633.87
11.07%	$543.32	$548.56	$554.38	$560.92	$568.28

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

$555.29

-51.0% vs current

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

Base Case

$686.01

-39.4% vs current

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

Bull Case

$824.36

-27.2% 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 Growth5.47%

Year 3 Revenue Growth6.14%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin14.32%

Terminal EBIT Margin15.00%

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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