The staggering rally of Whirlpool (WHR 2.72%) hit a brick wall, and have declined this past month. Despite the recent setback, the company's stock is still up by over 40% for the year. Is Whirlpool still worth keeping? How does it measure to other leading brands in its field? Let's examine this company's performance against the market, and competitors such as Panasonic (PCRFY +0.00%) and Electroux AB (ELUXY +0.44%), to answer these questions.
According to a recent report , U.S. retail sales increased by 4.3% in the first eight months of 2013. Conversely, the report also reveals that electronics and appliance stores sales only inched up by 0.1% during the first eight months of the year compared to the same time last year. This means U.S. electronics and appliance sales haven't increased during the year.
If this persists, this may indicate leading electronics & appliance stores won't expand their revenue. Whirlpool and other market leaders are likely to benefit from this low bar. Let's examine how the company has performed in the past quarter and what its outlook is for the rest of the year.
According to Whirlpool's full-year outlook, most of the growth in demand will come from North America (9% gain). Moreover, the company also projects its revenue in Latin America will rise by 1%. Conversely, Whirlpool estimates it won't expand its operations in EMEA and Asia.
In the third quarter, the company has done well as its revenue grew by 4.2%, and its revenue increased by 2.4% during the first nine months of 2013. These numbers are higher than the growth in sales for the U.S. electronics and appliance sector.
The main regions that expanded during the quarter were in EMEA and North America. Furthermore, Whirlpool's 2011 plan to restructure its operations, mainly in North America, by reducing cost and capacity, which is expected to be completed by the end of the year, also helped increase the productivity and reduce costs. This should partly explain the rise in its profit margin in the past quarter.
Other leading appliances and electronics companies haven't done better. Electrolux's revenue slipped by 0.32% in the second quarter and its profitability slipped to 3.7%. Panasonic's revenue grew by only 0.5%, and its profit margin slightly expanded to 3.5%. For Panasonic, most of its 9% sales growth was due to a rise in revenue overseas, which was the result of the sharp depreciation of the Japanese yen against the USD and Euro. The company's domestic sales fell by 6% in the past quarter. Its overseas sales, after controlling the effect of changes in the foreign exchange, declined by 12%.
This means Whirlpool is not only outperforming the market but also growing faster and generating higher profit margins than other leading brands. One of the driving forces behind its strong growth in the U.S. have partly been due to the recovery of the housing market. This benefited not only Whirlpool, but also other appliances companies such as Electrolux, the U.S. accounted for 27% of the company's revenue in 2012.
Strong growth in sales, along with the positive and improved outlook from North America, should continue to help Whirlpool's stock . But this outlook should be taken with a grain of salt. Whirlpool's high growth in North American revenue could fall, if the U.S. housing market slows down. Further, numbers from the electronics and appliance sector suggests it isn't growing and could eventually hurt Whirlpool's sales.
Despite the sharp rise in Whirlpool's stock, the company's current valuation isn't high compared to the industry average.
Source of Data: Yahoo Finance and Aswath Damodaran's site.
The table compares enterprise value to EBITDA of Whirlpool to the electronics industry and to its competition. As you can see, the Swedish appliances manufacturer Electrolux has the highest EV-to-EBITDA ratio of 8.24. Whirlpool is in the middle of the pack at 7.61, which is slightly higher than the electronics industry average of 6.63. Panasonic has the lowest ratio of 4.42. Considering the higher profitability and stronger growth in sales, Whirlpool's valuation isn't high, and could be still considered a good bargain.
Take away
The slight increase in electronics and appliance stores in the U.S. could eventually curb the rise in Whirlpool's sales. But the company's strong outlook, along with its improved profit margin, is likely to make this company a solid investment. Even though its stock spiked during the year, it hasn't become overvalued.
