© Reuters. Whirlpool share is an overlooked gem
Whirlpool (WHR) manufactures and markets household appliances. It continues to outperform earnings and its stock continues to gain momentum. The stock is a great game for both capital gains and dividends. I am optimistic about the stock. (See Whirlpool (NYSE 🙂 stock charts on TipRanks)
Whirlpool exceeded its earnings expectations for the second quarter by $ 290 million and extended its quarterly profit hit to twelve. The company also beat its EPS estimates by $ 0.64 and grew its phenomenal diluted earnings per share to as much as $ 30.00.
Cost savings play their part
Whirlpool has spent time focusing on cost-saving initiatives such as reducing structural and discretionary costs by improving its supply chain efficiency and managing its working capital more effectively.
If you look at Whirlpool's profit margins, you can see that its initiatives have been successful. Gross profit margins rose from 16.25% last year to 21.47% a year later, while operating margins doubled (year over year) to 12.22%.
Balance sheet improvements
Whirlpool has reduced its balance sheet from around 110% to 38.5%. That, when combined with total wealth growth of nearly $ 2 billion, means intrinsic value has risen sharply.
The company announced a quarterly dividend of $ 1.40 last month, which is in line with its previous payout. Investors should take comfort in the fact that Whirlpool has increased its dividend for eleven consecutive years and there is still plenty of capacity left.
Additionally, Whirlpool's dividend coverage is 95.73% better than the industry average, and free cash flow to dividend yield is 192.21% better compared to the 5-year average. Both metrics suggest that dividend increases or, as an alternative, rampant share buybacks are pending.
Whirlpool shares are currently trading below fair value. The P / E ratio (7.88) and the price-to-book ratio (2.75) of the share are 43.55% and 8.90% respectively below the industry median.
I'd also like to highlight that the company's free cash flow return has doubled from 17.75% last year, while its EV / EBITDA is 52.22% below the industry median.
A useful valuation method is to compare the company's free cash flow and EV / EBITDA growth with the price increase. When we factor in the growth rate and relative valuation mentioned above, with its share price rising only 28% year over year, I can safely say that Whirlpool is still in abundance.
Wall Street's opinion
Wall Street thinks the stock is a hold. I'm afraid I have to contradict the consensus and argue that in addition to providing investors with a great option for dividend income, Whirlpool is also making price gains by relative valuation metrics on the charts.
Disclosure: At the time of publication, Steve Gray Booyens had no position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinions of the author only and not the views or opinions of Tipranks or its affiliates and should be viewed for informational purposes only. Tipranks does not guarantee the completeness, accuracy or reliability of this information. Nothing in this article should be construed as a recommendation or solicitation to buy or sell any security. Nothing in the article constitutes legal, professional, investment and / or financial advice and / or takes into account a person's specific needs and / or requirements, nor does the information in the article constitute a comprehensive or complete presentation of the matter or topic discussed therein. Tipranks and its affiliates disclaim any liability or responsibility with respect to the content of the article, and any action taken with the information in the article is at your own and sole risk. The link to this article does not represent the endorsement or recommendation of Tipranks or its affiliates. Past performance is not an indication of future results, prices or performance.