In this article let's take a look at Whirlpool Corp. (WHR, Financial), the leading manufacturer and marketer of home appliances.
Global Operations
The company's geographic segments consist of North America, Latin America, EMEA (Europe, Middle East and Africa), and Asia. Although, it manufactures its products in 12 countries and markets them around the entire world under 13 main brand names, half of its revenues come from North America. This is what we called “concentration risk” or “geographical risk”. But Whirlpool knows this very well and as a result it is focusing on fast growing Asian and Latin American markets as well. Whirlpool manages appliance sales and distribution in Brazil, Argentina, Chile, and Peru through a Brazilian subsidiary, and in Bolivia, Paraguay, and Uruguay through outside distributors. Further, about 10% of its revenue came from Europe, so when that region starts to rebound from its recession, it'll be very positive for the firm.
New Products
Expenditures in R&D relating to new products and the improvement of existing ones were about $1500 million between 2010 and 2012. For example, in India it is targeting up to 12% growth in turnover on the back of new product launches including high end kitchen appliances and prudent cost management.
Shares More Valuable
Dividends have been paid since 1929, which demonstrates their commitment to consistently returning capital to shareholders. Whirlpool pays a dividend yield of 2.2% (dividends of $3 divided by the price of $139.3), and recently the company announced a $500 million share buyback program.
Relative Valuation and Price Performance
In terms of valuation, the company sells at a trailing P/E of 15.5x, trading at a discount compared to the industry mean.
| Ticker | Company | P/E |
| WHR | Whirlpool | 15.5 |
| SODA | SodaStream International Ltd | 25.5 |
| JAH | Jarden Corp. | 31.5 |
| NC | Nacco Industries Inc | 11 |
| CSS | CSS Industries Inc | 13.4 |
This ratio indicates that the stock is relatively undervalued when compared to SodaStream International Ltd (SODA, Financial) and Jarden Corp. (JAH, Financial), but overvalued relative to Nacco Industries Inc. (NC, Financial) and CSS Industries Inc. (CSS, Financial).
In the next graph we can see the evolution of the stock price together with EPS. The reason is that earnings often lead the stock price movement. As we can appreciate, the price performance showed an interesting upward trend in the last five years. A long position of USD$10,000 five years ago today represents USD$36,911 (which means a 29.8% annual return which we think is pretty good).
With respect to earnings per share, although it declined by 35.3% in the most recent quarter compared to the same quarter a year ago, we see an upward trend in the past two years.
Final Comment
As outlined in the article, we expect stronger revenues for this year and the next one, driven by a rebound in the U.S. housing market. Moreover, we think Europe will recover from a long recession and this will benefit the company.
In this opportunity, I would recommend investors to consider adding the stock for their long-term portfolios, because the stock has good upside potential.
Whirlpool has proven to be a good long idea in the past and should be so even in the future. According to Yahoo! Finance, the estimated one-year target share price is $172.38, so if you buy shares at current market price ($139.79), your return from price appreciation would be 23.3%. In addition, for holding the stock one year, you'll be paid a dividend of 75 cents per share each quarter, totalizing $3 at the end of the year or a dividend yield of 2.2%. So the total expected return for investing in Whirlpool is 25.5%.
Hedge fund gurus have also been active in the company in the first quarter of 2014. Joel Greenblatt (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), David Tepper (Trades, Portfolio) and John Buckingham (Trades, Portfolio) have taken long positions on it.
Disclosure: Omar Venerio holds no position in any stocks mentioned.
