GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Whirlpool Focusing on New Products and New Regions

March 28, 2014 | About:
Patricio Kehoe

Patricio Kehoe

7 followers

Whirlpool Corp. (WHR) is a manufacturer and marketer of home appliances. The company’s principal products are laundry appliances, refrigerators and freezers, cooking appliances, dishwashers, mixers and other portable household appliances. The company also produces hermetic compressors for refrigeration systems.

In this article, let's take a look at this company and try to explain to investors the reasons this is an apparently appealing investment.

Developing New Products

It has been named as one of Fortune Magazine's World's Most Admired Companies. Whirlpool has ranked No. 1 in its category for four consecutive years, in the Home Equipment, Furnishings industry category. As a matter of fact, the company plans to develop new innovative products. In that sense, research and development were about $553 million, $578 million and $532 million in 2012, 2011 and 2010, respectively. It recently announces that it will invest $40 million to nearly double the size of its Ohio Plant. Additionally, this will generate about 400 new jobs by 2018.

Focused on Diversifying Regions

The company’s geographic segments consist of North America; Latin America; Europe, Middle East and Africa; and Asia. North America is Whirlpool's largest geographic region in terms of sales but it has been enhancing its presence in markets in Asia and Latin American. Of course there are risks associated with international operations such as foreign currency exchange rate fluctuations, changes in regulatory requirements, foreign tariffs or political or economic instability, but we believe in the strengths in these geographical regions in the near term.

Analyst Recommendation

The firm is currently Zacks Rank # 3–Hold, and it also has a longer-term recommendation of “Neutral”. A Hold rating indicates that the stock, over the next one to three months, will perform at an annualized rate of 10.56%, very similar to the S&P 500.

P/E, Earnings and ROE

In terms of valuation, the stock sells at a trailing P/E of 14.2x, trading at a discount compared to an average of 19.1x for the industry. To use another metrics, its price-to-book ratio of 2.2x indicates a premium versus the industry average of 1.49x and the price-to-sales ratio of 0.6x is below the industry average of 1.91x. Two metrics indicate that the stock is relatively undervalued relative to its peers.

Earnings per share (EPS) increased by 49% in the most recent quarter compared to the same quarter a year ago, to $2.26 per share for the fourth quarter of 2013. We include in the next graph the stock price because EPS often lead the stock price movement. As we can appreciate in the chart, the price performance makes the stock appealing with an interesting upward trend over the last two years.

1395973984901.png

Finally, I always like to see one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the return on equity. The ratio has increased when compared to the same quarter one year prior. Let´s compare the current ratio with the peer group in the next table:

Ticker

Company Name

ROE (%)

WHR

Whirlpool

16.8

ELUXY

Electrolux AB

4.69

SODA

SodaStream International Ltd.

15.98

BHZ

Beazer Homes USA, Inc.

-14.08

PFIN

P & F Industries, Inc.

15.42

As we can see, the firm has a higher ROE than it peers: Electrolux AB (ELUXY), SodaStream International Ltd. (SODA), Beazer Homes USA Inc. (BHZ) and P&F Industries Inc. (PFIN).

Final Comment

The firm´s revenues rose trails the industry average of 28.2%. This growth seems to boost the EPS as we have seen. Moreover, net income increased by 48.4% when compared to the same quarter one year prior, rising from $122 million to $181 million. These numbers clearly demonstrate the improvement of the company´s strength.

I would recommend investors to add Whirlpool to their long term portfolios. Hedge fund gurus have also been active in the company in fourth quarter 2013. Gurus like Paul Tudor Jones (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Jim Simons (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio) and Caxton Associates (Trades, Portfolio) have taken long positions in it.

Disclosure: Patricio Kehoe holds no position in any stocks mentioned.

About the author:

Patricio Kehoe
A fundamental analyst at Lone Tree Analytics

Rating: 5.0/5 (1 vote)

Voters:

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK
Email Hide