Whirlpool Is Why This Market Will Move Higher
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Sustained Demand Drives Whirlpool To New Highs
Whirlpool (NYSE: WHR) is a great example of what we love about the market and the economy today. The company is delivering strong results driven by sustained demand across segments in a way that will help drive economic growth for the next few years. From what we hear, the backlogs alone are enough to keep the appliance industry business for the next year or so. Add to that current demand and the outlook for revenue growth this year is robust indeed. When it comes to owning the stock, Whirlpool offers a deep value relative to the broad market, it pays a very safe 2.4% yield, and just increased the buyback allotment. Three catalysts for higher prices if we ever heard them.
Whirlpool Spins Past The Consensus Then Guides Higher
Whirlpool analysts were expecting a big quarter for the company but they underestimated two things. The first is the demand, the company reports double-digit increases in all operating regions. The second was leverage, the company was able to expand its margins on cost-leveraging and internal controls to deliver earnings far above the consensus. The takeaway is that business is strong, demand is still very high, and the consensus targets for this year and next year are about to see some significant upward revisions.
The top-line revenue fell slightly on a sequential basis but there were fewer days in the calendar period. That said, the $5.36 billion in net revenue is up 23.8% from last year and beat the consensus target by nearly 1000 basis points. The Asia region was strongest with a 42% surge in sales but all segments grew at least 18% (Latin America). The U.S. grew by 19% and saw a 98% increase in earnings while the EMEA region grew 33%. Earnings in Latin American grew by 100% while the EMEA and Asia regions reversed losses in the year-ago period to deliver solid profits this year.
Moving down the report, the combination of better-than-expected revenue and widening margins helped drive mind-boggling results on the bottom line. The GAAP operating margin widened by 450 basis points while the adjusted grew by 620 bps to double from last year. The GAAP $6.81 in earnings beat by $1.58 and the adjusted $7.20 beat by $1.80. The company used all that cash to pay down debt ahead of schedule and hit its 2X leverage target, it raised the dividend by 12% and double the 5-year CAGR, and it increased the buy-back allotment by $2 billion to $2.4 billion.
Whirlpool Increases More Than The Dividend
Whirlpool made headlines when it raised the dividend but that is not all it is raising. The company, based on the strength in Q1 results, upped the full-year guidance as well. Whirlpool execs are now expecting revenue growth in the range of 12% versus the previously guided 6% and we think that might be on the cautious side. Not only is there a building FX tailwind in the overseas markets but there is this to consider: demand is already this high and the reopening/recovery hasn’t even really begun. The second half of the year is going to be interesting, we won’t be surprised to see Whirlpool exceed its guidance and guide higher later in the year.
The Technical Outlook: Whirlpool Is About To Have A Price Adjustment
Whirlpool is a deep-value stock in our opinion trading at roughly 11X this year’s and next year’s consensus. Add in the fact the consensus is far too low the value gets even deeper. In our view, this has the stock set up to 1) move up 5.5% to 6% and trade back in line with the 11X valuation and then 2) move even higher on a larger multiple expansion. The new Wall Street high price target from J.P. Morgan underscores that point. They see this stock trading near $160 or about 10% above today’s premarket action and this is still low in our opinion. Simply looking at the chart, the technical target once a new high is set is closer to $275 or 16% upside and that’s without the dividend.
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