I like following companies that have larger market capitalizations and relative liquidity, but still remain sparsely covered and under-owned. Whirlpool (WHR) is one of these companies; a dominant force with a terrific stable of brands and global reach. The company has a strong research and development franchise and is an underappreciated "lifestyle" brand amid some pretty solid secular tailwinds driving their business.
Last week, Whirlpool reported second-quarter results that beat earnings estimates. Operating margins in North America continued apace and the company raised guidance for profitability in the region, despite recently higher raw material costs (especially steel). In Europe, the company remains sanguine about prospects for continued margin expansion since it acquired Indesit in 2014.
We saw some progress toward the long-term goals, but volume in the region remains tepid. In Latin America, amid a very weak Brazilian economic backdrop, the company made progress on stabilizing inventories. Favorable pricing mechanisms and better fixed-asset management enabled the company to show expanded margins year over year. Long term, the Brazilian consumer environment remains favorable demographically, and WHR has strong positions in the region.
Last week, the company also received a favorable anti-dumping ruling from the Department of Commerce, which placed duties on Chinese-produced washing machines. The usual competitive pricing environment, driven by LG and Samsung, continued and has dampened the stock's valuation over time, in my opinion. Yet Whirlpool continues to execute. Over time, the usual variability of near-term market-share shifts and, at times, competitive pricing will be realized as the regular risk of doing business. This environment has always been the reality for Whirlpool; and it has not stopped the company from executing on long-range goals of higher free cash flow conversion and profit margin expansion.
The second-quarter results and favorable ruling from the Commerce Department were both thesis-confirming events for Whirlpool shareowners. Underlying capital allocation, toward share repurchase and dividend growth, provide a good margin of safety for the shares -- which are plagued at times with near-term gyrations in AHAM data and temporary retail pricing movement.
Looking into 2017, we can see a continuation of double-digit earnings growth, toward the company's long-term goal of earnings well over $20 per share. Another step toward this goal, $17-$17.50 in 2017 EPS and a mere market multiple of 15x, articulates a value of nearly $260 per share, representing about 40% upside from current levels.
I like Whirlpool here.