The last year has seen a lot of different storylines emerge. Companies around the world found ways to evolve, but even so there are still significant challenges ahead. COVID is still a thing, even while pandemic-driven restrictions begin to ease, and that means that a complete “return to normal” as we tend to think of it is still an uncertain future event. Small businesses – especially those that rely on face-to-face interactions and gatherings – are still grappling with how to operate successfully, and despite a generally positive employment trend for the past year, the fact is that total unemployment remains very high, well above the levels that most economists would consider to be conducive to broad economic growth.
One of the most interesting counterpoints to the gloomy, depressing and frustrating part of the COVID-19 story is the way the housing market hasn’t merely been stable, but even grown over the past year. In a lot of different parts of the country, home prices have been rising on an accelerated basis over the past year. That has buoyed the operations of home builders, the companies that support them, and the businesses that homeowners purchase from to maintain, upgrade and furnish their homes.
That bullish trend amidst pandemic driven conditions is a big reason that Whirlpool Corp (WHR), the home appliance manufacturer has more than doubled over the past year. This is a stock that hit its bear market bottom at around $60 per share, but by May of last year had already rebounded to about $100. From that point, the upward trend gained even more strength, hitting a high point at around $200 and consolidating through February around that level before picking up momentum again in the last two months and hitting its recent high at around $240 over the past week or so. Do the company’s fundamentals provide a reasonable basis for the stock’s increase from those early pandemic lows? More importantly for a value-driven investor like myself, has the stock now risen past the point of useful value? Let’s dive in to find out.
Fundamental and Value Profile
Whirlpool Corporation is a manufacturer and marketer of home appliances. The Company’s segments include North America; Europe, Middle East and Africa (EMEA); Latin America, and Asia. In North America, the Company markets and distributes home appliances and small domestic appliances under a range of brand names. In EMEA, it markets and distributes its home appliances primarily under the Whirlpool, Bauknecht, Ignis, Maytag, Laden, Indesit and Privileg brand names, and domestic appliances under the KitchenAid, Hotpoint and Hotpoint-Ariston brand names. In Latin America, it markets and distributes its home appliances and small domestic appliances primarily under the Consul, Brastemp, Whirlpool and KitchenAid brand names. The Company markets and distributes its products in Asia primarily under the Whirlpool, Maytag, KitchenAid, Amana, Bauknecht, Jenn-Air, Diqua and Royalstar brand names. It manufactures and markets a line of home appliances and related products. WHR’s current market cap is $14.8 billion.
Earnings and Sales Growth: Over the last twelve months, earnings increased more than 155%, while sales rose about 24%. In the last quarter, earnings grew about 8.4% while sales declined a little more than -7.5%. The company’s margin profile has also improved noticeably over the past three months, as Net Income increased from 6.64% of Revenues over the last year to a little over 8% in the last quarter.
Free Cash Flow: WHR’s free cash flow is robust, at about $2.25 million. That number also translates to a Free Cash Flow Yield of only 15.25%. This is a measurement that nearly doubled in the last quarter from $1.25 billion.
Debt to Equity: WHR has a debt/equity ratio of 0.97. This number is a bit high, but the company’s operating profile indicates that profits are sufficient to service their debt. The company’s balance sheet shows $2.4 billion in cash and liquid assets against $4.9 billion in long-term debt.
Dividend: WHR pays an annual dividend of $5.60 per share, which translates to an impressive yield of about 2.38%. It is worth noting that at the end of 2018, the company’s dividend was about $4.60 per share. The rise over that period – including increases in 2019 and 2020, in the midst of the pandemic – is a strong sign of fundamental strength.
Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but I like to worth with a combination of Price/Book and Price/Cash Flow analysis. Together, these measurements provide a long-term target at about $268 per share. At the stock’s current price, that means WHR is undervalued by about 13%.
Technical Profile
Here’s a look at the stock’s latest technical chart.
Current Price Action/Trends and Pivots: The chart above displays the stock’s upward trend over the past year. The red diagonal line traces that trend, and also provides the baseline for the Fibonacci retracement lines shown on the right side of the chart. The stock’s recent peak at around $246 has given the stock a new consolidation range since the beginning of April, with current resistance at around $230 and resistance at around $240. A drop below $230 has short-term downside to about $222, while a push above $246 should have about $15 of upside to the $261 dollar range.
Near-term Keys: The stock’s current stabilization around support gives the stock short-term room between $240 and $245 to immediate resistance; a bounce off of support could give an interesting short-term signal to buy the stock or work with call options. A drop below $230 would provide a strong signal to consider shorting the stock or buying put options, using next support at around $222 as a useful bearish profit target. For most investors, WHR’s current stock price is elevated to a point that makes it hard to work with; but if you don’t mind working with high-priced stocks, the company’s underlying fundamental strength also provides an interesting, if not quite compelling value proposition to buy a stock under current economic conditions that seem particularly suited to its industry.