The last two years have seen a lot of different storylines emerge. COVID is still very much a thing, and isn’t likely to go away soon; the question at this stage is when we’ll be able to say that we have moved from “pandemic” conditions to “endemic” – where a virus or disease is regularly found, like the flu. That doesn’t mean it isn’t still dangerous, but it does imply a significant shift in the way it is managed. Along the way, companies around the world have found innovative ways to evolve during the pandemic, which helped businesses not only stay open but also to thrive in many cases. A significant side effect of the pandemic has been sustained, long-term pressures on supply chains in practically every industry and that seem to have a starting point in semiconductor and chip shortages that were already problematic before COVID-19 became a global reality. Those pressures have pushed inflation in the U.S. to levels that finally prompted the Fed to reverse course and raise interest rates last week for the first time in four years.
One interesting counterpoint 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 along the way in most parts of the United States. In a lot of different parts of the country, home prices have risen on an accelerated basis over the last two years and 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. Rising inflation, and increasing interest rates raise the question of whether those gains will be sustainable, or whether they will begin to recede as well. The answer is likely to impact the entire industry and those that support it.
That bullish trend amidst pandemic driven conditions is a big reason that Whirlpool Corp (WHR), the home appliance manufacturer more than quadrupled from its pandemic low at $60 in May 2020 into the end of the first quarter of 2021, when it peaked at around $258 per share. The stock has since fallen into a decisive downward trend that has pushed the stock below $190 as of this writing. The question of this company’s exposure to the cyclical nature of economic growth and contraction is a good one to ask. Should you take the stock’s downward trend as a sign to stay away from this stock, or do the company’s fundamentals provide a reasonable basis to suggest that the stock could offer a useful value at this current price? 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 $11.1 billion.
Earnings and Sales Growth: Over the last twelve months, earnings declined about -7.5%, while sales were flat, but positive by 0.29%. In the last quarter, earnings declined a little over -8% while sales were almost 6% higher. The company’s margin profile has also decreased over the past three months, as Net Income was 8.11% of Revenues over the last year and slipped to a little over 5% in the last quarter.
Free Cash Flow: WHR’s free cash flow is healthy, at about $1.95 billion. That number also translates to a Free Cash Flow Yield of 16.51%. This is a measurement that has dropped from about $2.9 billion in mid-2021 and $2.25 billion a year ago.
Debt to Equity: WHR has a debt/equity ratio of 0.98. 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 $3 billion in cash and liquid assets against $4.9 billion in long-term debt.
Dividend: WHR pays an annual dividend of $7 per share, which translates to an impressive yield of about 3.59%. It is worth noting that at the end of 2018, the company’s dividend was about $4.60 per share, and $5.60 about a year ago. The rise over that period 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 $231.50 per share. At the stock’s current price, that means WHR is undervalued by about 22%.
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 downward 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 may have found a bottom for its trend earlier this month at around $183, with current support at around $189. Immediate resistance is expected to be in the $195 range. A push above $195 should find next resistance at around $200 per share. The stock would actually need to push above the 38.2% retracement line at around $211 to mark a legitimate reversal of its downward trend. A drop below $189 should see the stock test its recently low at $183 for next support, with additional downside to about $177 if bearish momentum increases.
Near-term Keys: The stock’s current price activity suggests that a push above $195 could give an interesting, albeit aggressive short-term signal to buy the stock or work with call options. This is an aggressive signal given the strength of the stock’s long-term downward trend. A drop below $189 would provide a strong signal to consider shorting the stock or buying put options, using next support at around $183 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 value proposition to buy a stock with a healthy dividend. Broad conditions would suggest that the stock could remain under pressure for the time being, but if you are willing to be patient, and comfortable with the stock at its current price it’s long-term opportunity could be significant.