Is Whirlpool (WHR) Ready to Whirl Higher?
Tuesday, February 7th, 2016
Whirlpool is in the Consumer Goods sector and the appliances industry. The company manufactures products such as refrigerators and freezers, cooking appliances, dishwashers, and laundry appliances. Whirlpool operates under brand names such as KitchenAid, Maytag, Gladiator and Swash. Gladiator is the leader in garage, household organization and storage systems. Swash is an innovative product that cleans and freshen clothes.
The current price for WHR is $174.69 and the 52-week range is $128.24 - $194.10.
Looking at the valuation ratios, many of them compare favorably to the industry average. The current Price/Earnings ratio is 14.96, which is below the industry average of 31.05. This is a positive, as we like to see valuation ratios below the industry average. It shows we are getting a good value for that given metric. Price/Sales of 0.63 is nearly half the industry average of 1.18. Price/Cash Flow of 8.19 is also below the industry average of 13.79.
An area of concern would be the company’s Price/Tangible Book value as it is not material. This can be attributed to the company having nearly $3 billion of goodwill on the balance sheet. This is most likely a result of the company acquiring well-known brands. Before investing in this company one must understand the details of those acquisitions.
Whirlpool pays a small dividend of 2.32% and only uses 25.34% of its earnings to pay out that dividend. This is a positive as the company has the capability to increase the dividend, without using too much of its earnings.
Sales have grown by 1.7% quarter over quarter versus the industry average of 25.5% and has seen a decline of 0.8% year over year versus the industry average which has increased by 2.2%. It is important to question and understand why Whirlpool’s sales lagged the industry average.
Although sales were a question, EPS looks to be strong as it grew 3.67% quarter over quarter versus the industry average declining by 38.75%. Looking year over year, EPS rose 17.44%, while the industry average increased 25.7%. Although EPS growth was slightly below the industry average, we still see 17% as a strong growth rate. As an investor, it is important to understand if the growth will be reoccurring or if it was due to changes in accounting methods that will only produce a onetime change.
Turning to the balance sheet, a current ratio of 0.96 is somewhat of a concern as the company has more current liabilities than current assets.
Total Debt/Equity of 93.65% is starting to approach an uncomfortable level, but this is a high debt industry as the average is 117.69%. Whirlpool appears to have a decent amount of short term debt as it accounts for 12.44% of total debt. It is important to make sure the company has the capability to pay off that short term debt, so it does not have to continue to borrow in a rising interest rate environment.
Looking forward to December 2018 and using a forward multiple of 16.5 Estimated GAAP EPS of $16.91 gives us a target sell price of $279.02. While this is 59.7% away from the current price, there is further research that should be conducted before buying this company. The main concerns here would include the company’s debt level, the high amount of goodwill and intangibles on the balance sheet.
Do you have a question or a company you'd like us to take a look at? Email us at Brent@WilseyAssetManagement.com or Chase@WilseyAssetManagement.com.
Brent Wilsey is president of Wilsey Asset Management and can be heard every Saturday at 8 a.m. and Sundays at 5 p.m. on KFMB AM760.
Chase Wilsey is a financial analyst for Wilsey Asset Management and can be heard every Saturday at 8 a.m. and Sundays at 5 p.m. on KFMB AM760 as the co-host for the Smart Investing show with his father Brent Wilsey. Information is provided by Reuters.