Is Whirlpool a Good Stock to Buy?
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Whirlpool (NYSE: WHR) is up 47% so far in 2012 after falling about the same amount in 2011. The see-sawing appliance company, responsible for washing machines, dishwashers, mixers, refrigerators, and other comforts of modern residential life, has missed earnings expectations in three of the last four quarters but on average is beating them in the first two quarters of this year.
There was some insider buying at Whirlpool earlier this year, but due to the rise in the stock price those transaction prices were all below the point where the stock currently trades. The president of Whirlpool has been reducing his stake this year, including at prices below the current market price, but that may be due to a desire to diversify.
Whirlpool attracted a good deal of attention from hedge funds in the first three months of the year. Ken Heebner’s Capital Growth Management initiated a position of 1.8 million shares, which made that fund the largest holder of the stock whose 13F filings are tracked by Insider Monkey. Partner Fund Management, run by Christopher Medlock James, also initiated a position -- this one of about 900,000 shares. Value investor Edgar Wachenheim at Greenhaven Associates increased the fund’s stake to just under 1.8 million shares.
In Whirlpool’s 10-Q for the second quarter of 2012, the company reported a fall in revenue of 5%, though thanks to a decline in interest and other expenses Whirlpool was able to post a profit compared to Q2 2011’s loss. North American revenues grew but business declined in both Latin America and EMEA. For the first half of the year the company is seeing a small decrease in revenue but again, miscellaneous expenses are lower and this allows it to post a boost in profits. However, cash flow from operations for the first half of the year is more negative than in 2011. In the last quarter of 2011 the company announced a restructuring plan that it expects to conclude by the end of next year.
Despite its performance so far this year, Whirlpool is still priced at value levels, likely because the business is struggling and investors doubt the capabilities of its restructuring plan. Whirlpool’s trailing P/E is 10, and its forward P/E based on sell-side estimates is 9. Between that and a 2.9% dividend yield, it would be an excellent value stock if an investor was more confident in its future business performance. Given the current stock price, the EV/EBITDA multiple is a fairly cheap 5.1 for such a strong market leader in its industry.
Whirlpool doesn’t have too many close pure-play peers; most competitors or comparable companies are business units of larger corporations. For example, many of its products compete with offerings from General Electric (NYSE: GE), which has also rallied well this year despite its large size. GE at this point trades at 18 times trailing earnings and a forward P/E of 12; it would normally be considered a value stock, but is more priced for growth than Whirlpool. Siemens (NYSE: SI) is another conglomerate, which includes refrigerators and dishwashers among its products. Its multiples are between GE’s and Whirlpool’s. Finally, Spectrum Brands Holdings (NYSE: SPB) provides a number of consumer products including batteries but also owns brands such as Black & Decker (which makes toasters and coffee makers as well as tools) and George Foreman. The company trades at a forward multiple of 12, again above that of Whirlpool.
Whirlpool is a cheap stock, and while its business faces challenges it may be worth considering adding the company to a portfolio.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.