Can Investors Clean Up With Beaten-Down Whirlpool Stock?

Year to date, shares of Whirlpool are down 18%. Can investors still find a way to clean up with Whirlpool?
By Chris Laudani ,

Year to date, shares of Whirlpool (WHR) - Get Report are down 18%. Can investors clean up with Whirlpool? I'm not so sure.

Whirlpool shares have been under pressure all year as concerns over currency and weakness in Brazil have weighed on the stock. In fact, Brazil has seen its steepest decline in GDP since 2009. The Brazilian real has depreciated 41% in 2015.

This year, sales in Brazil fell 34% to $751 million. Operating margin declined from 10.4% to 4.2%. While Brazil represents less than 10% of global sales, investors are looking for signs the company can grow outside of its core North American market.

Worldwide, Whirlpool has had to deal with a lot of change. Besides pressure from Brazil, the Canadian dollar has declined 15%, the Russian ruble is down 56% and even the euro has fallen 16%. In total, Whirlpool has had to absorb about $2.5 billion in currency devaluations or about $4 per share in earnings and another $900 million in sales from weak markets in Brazil, China and Russia.

Sales in North America were down 1% to $2.791 billion. Operating margin jumped 110 basis points to 12%. The better margins were driven by new products, ongoing cost productivity and lower raw material costs.

It seems the only good news in the quarter came from Asia. Sales in Asia grew 120% to $346 million, but most of that came from the acquisition of Hefei in China.

Most analysts believe the company can overcome all these challenges. Management has made a conscious decision to grow profitably instead of using its previous strategy of sacrificing margins for market share. The Latin American division has been through three rounds of cost-cutting and restructuring that should allow the Latin American business to begin posting better results by the fourth quarter.

The integration ofIndesit and Hefei is going smoothly, which could provide some upside next year. North American sales volume is expected to pick up to 5% from 4%, which, combined with some tailwinds from lower raw material costs, could provide a few surprises in North America. Business in Europe is expected to be up 2% vs. the previous estimates of flat to down.

Analysts argue that Whirlpool is a cheap stock. Continued cost-cutting, more acquisitions and share buybacks could propel the multiple from 10.5 times to something closer to its historical average of 14 times. Using fiscal 2016 earnings estimates of $14.91 and a 14 multiple, analysts think Whirlpool could trade over $200.

I'm not so sure.

Whirlpool has too many moving parts that never seem to work together. If the Fed raises interest rates next month, it's only going to get more difficult for the company to manage currency fluctuations. For the stock to get a higher multiple, Whirlpool has to start beating the consensus estimate. At this time, I don't think investors are going to clean up with Whirlpool.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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