Whirlpool Won’t Be A Deep Value For Long
Price action in Whirlpool NYSE: WHR corrected earlier this year but that is over. The correction was driven by fears of underperformance after outperformance was priced in and those fears were misplaced. The company is suffering from supply chain hurdles and inflationary pressures like every other company in business today but it was able to protect its margin. This is good news for the dividend and dividend investors because it has the company set up for another distribution increase later this year. The dividend alone is enough to make the stock attractive, it yields over 3.75% even with the post-earnings pop in share prices. Add in the outlook for dividend growth and the ultra-low value and the stock becomes a steal. Trading at only 6.75X its earnings the stock is a deep value and one that we see more than doubling in price over the next few quarters.
Whirlpool Rises On Strong Results
Whirlpool had a decent quarter despite apparent weakness in the top-line results. The company reported $4.99 billion in net revenue for a decline of 6.9% (FX neutral) versus last year and missed the consensus by over 585 basis points but that is where the bad news ends. Most of the weakness was in Asia which fell by 28.8%. That was due to the divestiture of Whirlpool China earlier in the year and offset by stronger performances in Latin America and EMEA. Sales in EMEA fell only 0.5% while Latin America grew by 0.8%. North America, the core market, declined by 8.5% but that is due mostly to supply constraints that should be resolved later in the year. When supply and shipping issues resolve North America should see revenue accelerate. On a two-year basis, sales are up 13.8%.
Moving down to the income, the company reported margin contraction but much less than expected. The GAAP net margin contracted only 170 basis points due to pricing efforts and product mix and drove very strong results on the bottom line. The GAAP and adjusted EPS both fell versus last year but both beat the consensus by wide margins. The adjusted EPS of $5.31 beat by $0.52 and we see that strength continuing into the end of the year.
The guidance is also positive despite being lowered. The company lowered its guidance for earnings by $3.00 per share but to a range that is bracketing the consensus and leaves room for upside surprises. Based on the Q1 results and our expectations for business over the next 3 quarters we think Whirlpool will outperform its own outlook as early as the current quarter and readjust the guidance accordingly.
It Pays To Own Whirlpool
Whirlpool is a solid dividend payer yielding over 3.75% and it comes with a healthy outlook for distribution increases. The company is only paying out about 30% of its earnings outlook at the low end of the range and the balance sheet is a fortress. The balance sheet and cash flow are so strong the company also raised the buyback by $2 billion which leaves $2.9 billion to be spent. That’s worth nearly 30% of the market cap with shares at $185 and should be a strong tailwind for price action.
The Technical Outlook: A Perfect Storm For Whirlpool Bulls
Price action in Whirlpool opened with a gain of more than 4% following the earnings release and they are indicated higher. The move confirms support at the $170 level and sets the stock up for a reversal as well. The indicators are already bullish and pointing higher and both have room to run so we are expecting higher prices. That outlook is also supported by the short-interest which is high at 13% and more than high enough for a strong short-covering rally.
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