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Whirlpool (WHR) Stock Rallies 120% in a Year: Will It Sustain?

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Zacks Equity Research
·5-min read
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Whirlpool Corporation WHR has been displaying a robust show in the past year, thanks to the spike in demand for kitchen and home appliances as consumers continue to invest in home upgrades with increased stay-at-home practices. Moreover, the company has been benefiting from the execution of its go-to-market strategies and cost takeout endeavors. Also, its sales have been gaining from growth across all regions, except for Asia. Moreover, it is focused on enhancing e-commerce and improving direct-to-consumer capabilities.

The stock of the largest manufacturer of home appliances in the world has rallied 120% in a year’s time compared with the industry’s 117.7% growth. Moreover, the Consumer Discretionary sector and the S&P 500 have grown 56.3% and 49.1%, respectively.

Moreover, the Zacks Rank #3 (Hold) company’s VGM Score of A and long-term earnings growth rate of 3% indicate that the stock’s momentum is likely to continue.

Additionally, gains from these factors were well-reflected in the company’s strong fourth-quarter 2020 results, with the top and bottom lines surpassing the Zacks Consensus Estimate and improving year over year. This marked the 10th straight quarter of earnings beat and the top line surpassed the Zacks Consensus Estimate for the third consecutive quarter. Also, the company generated $500 million of net cost takeout in 2020 through its COVID-19 response plan.

Whirlpool has chalked out plans to protect margins and enhance the liquidity position to navigate through this difficult time. Through the plans initiated in the first quarter of 2020, the company has generated cost savings of approximately $175 million in the quarter and $350 million year to date. These actions include curtailing structural and discretionary costs, capturing raw material deflation opportunities, effectively managing working capital, and syncing supply chain and labor levels with demand.

The better-than-expected performance prompted management to issue an upbeat sales and earnings per share guidance for 2021. Whirlpool envisions net sales (excluding currency impact) growth of approximately 6% for 2021, with sales growth in all regions. Additionally, it anticipates adjusted earnings of $19-$20 per share.

Going forward, the ongoing EBIT margin is expected to be more than 9% on the back of a positive price mix, stemming from go-to-market actions, product launches and cost-based price increases in Brazil, Russia and India.

Moreover, management noted that signs of recovery such as improved demand and positive housing trends position the company well for 2021. The company envisions the demand for household appliances to remain strong, driven by rising disposable income, increased investments in home space and a favorable housing shift.

The Zacks Consensus Estimate for 2021 revenues presently stands at $20.31 billion, suggesting growth of 4.4% from the year-ago reported figure. The consensus estimate for 2021 earnings of $20.19 per share suggests an increase of 8.8% from the year-ago quarter’s reported number. Moreover, the consensus estimate has been unchanged in the past 30 days.

Possible Headwinds

Whirlpool has been witnessing declining sales in Asia for the past few quarters, attributable to the pandemic-induced disruptions. Notably, net sales from Asia decreased 0.7% to $354 million in fourth-quarter 2020. Excluding the currency impacts, sales for the region fell 0.7%. Prior to this, sales in the region dropped 1.4%, 27.1% and 22.3% in the third, second and first quarters of 2020, respectively. The persistence of the trend is likely to get reflected in the company’s top line in the near term.

Additionally, raw material inflation, particularly led by higher steel and resin costs, is expected to weigh on margins by 150 basis points (bps) in 2021. Also, heavy investment in innovative products and technology may strain the near-term margins. The company expects increased investment in marketing and technology to hurt margins in 2021 by 50 bps.

Better-Ranked Stocks to Watch

GIII Apparel Group, LTD. GIII has an expected long-term earnings growth rate of 11.6%. It presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Gildan Activewear, Inc. GIL has an expected long-term earnings growth rate of 9%. The company flaunts a Zacks Rank #1 at present.

Columbia Sportswear Company COLM, a Zacks Rank #2 (Buy) stock, has an expected long-term earnings growth rate of 31.7%.

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Columbia Sportswear Company (COLM) : Free Stock Analysis Report

Whirlpool Corporation (WHR) : Free Stock Analysis Report

GIII Apparel Group, LTD. (GIII) : Free Stock Analysis Report

Gildan Activewear, Inc. (GIL) : Free Stock Analysis Report

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