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Whirlpool Stock is an Overlooked Gem

Stock MarketsSep 12, 2021 12:00PM ET
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© Reuters. Whirlpool Stock is an Overlooked Gem

Whirlpool (WHR) manufactures and markets home appliances. It keeps on beating earnings, and its stock keeps on gaining momentum. The stock is an excellent play for both capital gains and dividends. I am bullish on the stock. (See Whirlpool (NYSE:WHR) stock charts on TipRanks)

Earnings Growth

Whirlpool beat its Q2 earnings expectations by $290 million, extending its quarterly earnings beat streak to twelve. The company also beat its EPS estimates by $0.64, bolstering its phenomenal diluted EPS figure up to $30.00.

Cost-Saving Playing its Part

Whirlpool has spent time focusing on cost-saving initiatives such as reducing structural and discretionary costs by improving its supply chain efficiency, and managing its working capital more effectively. 

Examining Whirlpool's margins, it's apparent that its initiatives have been successful. Gross profit margins have increased from 16.25% a year ago to 21.47% a year later, while operating margins have increased twofold (year-over-year) to 12.22%.

Balance Sheet Improvements 

Whirlpool has delevered its balance sheet from roughly 110% to 38.5%. Combined with total asset growth of nearly $2 billion, that means intrinsic value has increased sharply.

Dividends

The company declared a quarterly dividend of $1.40 last month, in line with its previous payout. Investors should find comfort in the fact that Whirlpool has increased its dividend for 11 consecutive years, with plenty of capacity left. 

Furthermore, Whirlpool's dividend coverage is 95.73% better off than the industry median, and its free cash flow to dividend yield is 192.21% better off relative to its 5-year average. Both these metrics indicate that dividend increases are on the horizon, or rampant share repurchases as an alternative.

Valuation

Whirlpool stock is currently trading below its fair value. The stock's P/E (7.88) and its Price to Book (2.75) ratios are trading below the industry median by 43.55% and 8.90%, respectively. 

I'd also like to highlight that the company's free cash flow yield of 17.75% has doubled over the past year while its EV/EBITDA trades 52.22% below the sector median. 

A useful valuation technique is to compare the company's free cash flow & EV/EBITDA growth with the price appreciation. If we consider the above mentioned growth rate and relative valuation to a stock price increase of only 28% year-over-year, I think it's safe to say that Whirlpool still has value in abundance.

Wall Street's Take

Wall Street thinks the stock is a hold. I'm afraid I have to disagree with the consensus, and contend that Whirlpool won't only provide investors with a good option for dividend income, but price gains are also on the charts, according to relative valuation metrics.

Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.

Whirlpool Stock is an Overlooked Gem
 

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