Grainger (GWW) Q3:26: Strong results, broadening demand, and an underappreciated data center benefit

Grainger is the third-best-performing company in the Industrials sector, up ~48% YTD, lagging only Stanley Black & Decker (not covered) and Bloom Energy (covered by Sunaina Ocalan). Top and bottom line improvements are the main drivers—FY26 sales growth guidance improved to 9.8%, up from 5.1% entering the year, and EPS growth of 20% versus 10%. As top and bottom line estimates increased, so too has the multiple, now trading at 29.5x P/E, up 28% from 23.1x in January. Fundamentally, this business is much better off—a stark improvement coinciding with a better PMI inflecting with an uptick in data center construction. We believe investors, and ourselves, underappreciated Grainger's data center benefit entering the year and continue to this day. Fastenal called out a 4-5ppt benefit from data centers to growth, arguably too low, while Grainger's commentary remained unchanged at 2%+ across direct and indirect exposure. We think the benefit is higher, as data center spending supports adjacen