Ugly Duckling Whirlpool Set Up To Shine
JP Morgan just called out Whirlpool (NYSE:WHR) as one of its top picks citing many of the factors that we ourselves see in the stock. Not only is this 2.6% yielding dividend payer undervalued at only 9X its earnings but it is also supported by secular trends that promise to keep it operating at or near full capacity for several years. The combination of stay-at-home trends, housing trends, home improvement trends, and the flight to the suburbs have the company’s backlogs growing and outpacing sales to the point Whirlpool has had to increase its capacity. The only thing holding it back now is the availability of components and trucks to deliver its goods. If you think we're finding go try to buy a refrigerator, washer, or a stove and have it delivered this week.
According to JPMorgan (NYSE:JPM), the analyst community has grossly underestimated this company. Analysts there think Whirlpool can easily top its expectations and we more than agree. The analysts are, in general, still on the fence with this company and still only rate it as a neutral or hold. Although the price target has trended higher by 7% in the last 90 days there have been no changes to the rating and 0 analyst notes. In fact, not counting today's call from JPMorgan, they've only been two significant analysts’ call-outs this year and both of those were in April.
Whirlpool Will Smash Through The Consensus Estimates
After reviewing the company's revenue and earnings history over the past year and looking at the consensus for the coming quarter it is highly unlikely that Whirlpool will not smash through the consensus estimate. The current target is for $5.05 billion in net consolidated revenue which would be up 25% from the previous year but down sequentially and down over the past two years. Based on what we're hearing from our sources within the appliance industry, we expect Whirlpool’s revenue to match if not exceed the $5.36 billion in revenue reported last quarter. That would be good for a 33% year-over-year gain and positive revenue growth over the past two years.
Whirlpool Pays A Super Safe Dividend
Whirlpool's dividend is attractive for more reasons than one. To start with, the 2.6% yield is about twice what you get from the average S&P 500 company, and now it's double what you can get from the 10-year treasury as well. Add to that an 11-year history of distribution increases and a fortress balance sheet and we find this payout very safe indeed. The company has been increasing with a five-year CAGR of 6% but the most recent increase was 12% leading us to believe future increases could be aggressive as well. The payout ratio is a low 24% of the consensus estimate, a consensus estimate that we feel is incredibly low, and the balance sheet provides no red flags so there is ample ammunition for future increases. The company achieved a 2X leverage ratio in the last quarter and there is no reason to think that will change anytime soon.
The Technical Outlook: Whirlpool Is Ready To Reverse
Shares of Whirlpool are up more than 2% in the wake of JPMorgan’s Shout out and look like they're ready to begin a reversal. Price action has met resistance at the short-term moving average where it is likely to consolidate as we get into the earnings season. If price action can get above the short-term moving average we see it advancing to retest the recent high above $250. If price action can get above that level and or is supported by positive results we see Whirlpool moving into the $300 to $350 range. Whirlpool is scheduled to report earnings on July 22.
