Whirlpool Corp. (WHR, Financial) is the world's largest home appliance maker with brands that include include Whirlpool, KitchenAid, Maytag, Consul, Brastemp and Jenn-Air.
Any investor that may be worried about the contagion effect of Sears Holdings (SHLD)'s bankruptcy should be happy to know that only $30 million of Whirlpool's accounts receivable was related to Sears, and that annual sales from its Sears account represented less than 2% of Whirlpool's annual revenue.
Year-to-date
Whirlpool's stock is down 55% with management pointing to factors that range from cost of steel and resin used in making large metal boxes to government tariffs and rising fuel prices. However, in the midst of its stock price dropping, the company remains highly profitable. Even the lowered forecasts are for 2019 earnings per share north of $16.00. The company was expected to hit that number in 2017, but came in at $13.78 instead, hence the pullback in its outlook and expectations from analysts.
Going forward
Whirlpool is expected to negotiate better contracts with vendors and suppliers. It has already enhanced its products and hiked prices, which should show up in the company's earnings this year and next. In the short term, domestic manufacturing policies will help it improve sales, and long term the company should be able to anticipate costs and drive bottom line growth.
Whirlpool's durable competitive advantage is being massively undervalued at this point. People will continue to buy new home appliances. These appliances will continue to become more advanced and more expensive. That will continue to help Whirlpool drive sales and profit. The company has a solid backlog to reach its growth targets through 2020. By then, the stock could reach the level it saw in 2015, when it was trading above $210 per share.
While JPMorgan warned earlier this month about a downturn in home repair and remodeling, the need for new affordable homes is still as high as ever, especially with interest rates rising. JPMorgan analysts dropped Whirlpool's rating to Neutral. Goldman Sachs initiated a Sell rating on Oct. 2. Both of these firms have been right so far, yet seem a little late to the party as the stock was already down considerably from the start of 2018.
Buying opportunity
Investors buying in now will receive a 4.6% annual dividend, and with earnings expected to come out next week, they won't have to wait long before seeing what the company anticipates for the rest of its fiscal year. If Whirlpool's earnings are on track to rise above $14 a share by next year, at 10x the stock price could rise 30% in the next year.
Disclosure: I am not long/short Whirlpool.
