Ken Heebner (Trades, Portfolio) is a growth oriented investor who co-founded Capital Growth Management, a money management firm with more than $6 billion under management. Recently, he initiated a long position in Whirlpool Corp. (WHR, Financial) by buying 145,000 shares of the company. Whirlpool's stock price is in a strong uptrend and has gained over 43% in the last six months. The company's fundamentals looks encouraging. Here's an analysis of the company in detail.
Business Basics
Whirlpool Corporation, the world’s leading manufacturer and marketer of major home appliances, was incorporated in 1955 under the laws of Delaware. Whirlpool manufactures and markets a full line of major home appliances and related products. The company's principal products are laundry appliances, refrigerators and freezers, cooking appliances, dishwashers, mixers and other portable household appliances. It also produce hermetic compressors for refrigeration systems.
The following table provides the percentage of net sales for each class of products which accounted for 10% or more of the company's consolidated net sales in FY2014:
| Product Type | Â | Percentage of revenues in 2013 | |
| Laundry Appliances | Â | 29% | Â |
| Refrigerators and Freezers | Â | 29% | Â |
| Cooking Appliances | Â | 18% | Â |
| Other | Â | 24% | Â |
| Net Sales | Â | 100% | Â |
The company's main competitors include Bosch Siemens, Electrolux, General Electric, Haier, Kenmore, LG , Mabe and Samsung.
Financials
The following table shows revenue, EPS and other key metrics of the company over the last three years.
Source: Gurufocus Value Screens
While the company's GAAP EPS has increased from $5.06 in FY2012 to $10.24 in FY2013, it decreased to $8.17 in FY2014. However, if one digs deeper into the company's financials, he will notice that most of the decline in the company's earnings in 2014 was due to the acquisition related cost from the two companies -- Hefei Sanyo and Indesit -- it acquired recently. In addition, the company spent considerable amount -- $136 million -- on restructuring expenses which will help its earnings in the medium to long term. Adjusted for these and other one time items, the company's adjusted EPS actually grew to $11.39 in FY2014. Going forward, sell side analysts are expecting the company's adjusted EPS to reach $14.54 in FY2015 and $17.12 in FY2016.
Investment Argument
Whirlpool has multiple opportunities for growth and margin expansion going forward. The first is one is geographical expansion. The company has recently acquired Hefei Sanyo and Indesit which will help it improve its business position in both Europe and China. In addition, the low appliance penetration rates and real wage growth in emerging economies like Brazil, China and India point to long-term healthy demand growth for the company's products. Second, the company continues to focus on growth beyond its core and is launching new models with innovation across all product lines. This will help it grow in mature markets. And finally, the company's ongoing cost reduction coupled with volume growth are expected to help its margin growth meaningfully going forward. So in total, the company is on track to create strong value going forward.
For the current year, the company has provided a topline guidance of $24 billion to $25 billion and EPS guidance in the range of $14 to $15 which represents ~25% improvement versus its 2014 results. In the US, improvements in housing trends, consumer sentiments and discretionary spending are expected to translate into increased appliance demand, while in Europe the company is set to benefit from recovering margin environment. Although recent gains in the US dollar versus other currencies is expected to be a headwind, the company will more than offset it with improved productivity, accelerated integration activities, and improved pricing. In addition, declining raw material prices are also expected to help the company's margins.
Whirlpool is trading at 14.76 times FY2015 EPS. According to sell side estimates, its EPS is expected to increase 26% in FY2015 and 18% in FY2016. It has a dividend yield of 1.40%. I believe the company is an ideal GARP (Growth at a Reasonable Price) stock.
