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Home appliance manufacturer Whirlpool (NYSE:WHR) has a number of appealing investment merits, but do its drawbacks outweigh the positives? Let's head to the company's recently released 10-K filing for some needed answers.

Whirlpool bills itself as "the world's leading manufacturer and marketer of major home appliances." I believe it; last March, the company acquired archrival Maytag, adding the venerable Maytag and Amana brands to its stable of names that include Whirlpool and KitchenAid. The competition is formidable and includes brands such as Kenmore (sold by Sears Holdings (NASDAQ:SHLD)) and those produced by industrial titans such as General Electric (NYSE:GE) and international champions including Haier, Samsung, and LG. But none operate solely in appliances.

Whirlpool admits the competition is fierce in its industry, but it's been around since 1898. That makes me comfortable that it can handle its peers and ups and downs in the business cycle. Speaking of economic conditions, the deteriorating market for residential housing is hitting all firms that operate in the space, be it homebuilders such as Pulte (NYSE:PHM), carpet manufacturers such as Mohawk Industries (NYSE:MHK), wallboard suppliers such as USG (NYSE:USG), or appliance companies such as Whirlpool.

Two of the biggest drivers for Whirlpool over the next couple of years will be its ability to successfully integrate Maytag and navigate the housing downturn. I believe that the acquisition will actually help matters, as Whirlpool will be able to cut costs while waiting for industry growth for return. During its year-end earnings discussion, the company estimated $400 million in annual cost savings by 2008 and 2007 earnings of $8-$8.50, well above last year's total of $6.35 from continuing operations.

Based off the current stock price of around $86, that's a forward P/E of only 10-11, below the low-teens average of the past couple of years. Profitability could dip if housing conditions worsen, but as it stands management is calling for $600 million-$650 million in free cash flow for 2007, or around $8 per share using the diluted figures from the 10-K. That's a pretty low cash flow multiple, if you ask me.

There are other risks to consider. Whirlpool's pension plan is currently underfunded by more than $1 billion, and this could be even higher as Maytag also has outdated defined-benefit plans. Furthermore, the company must continually spend to innovate and manufacturing appliances is capital intensive, so annual capital expenditure needs are relatively high.

Based on the current valuation, I find the risk/reward trade-off favorable for Whirlpool. I haven't placed any chips on the table as near-term housing conditions could remain weak. The current consensus is calling for a difficult first half of 2007, but the entire year could easily turn out to be a wash. But as I mentioned, Whirlpool has been around for more than 100 years, so I think it can handle any near-term difficulties.

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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.