The leading manufacturer of home appliances, Whirlpool Corporation (NYSE:WHR), has annual sales in excess of $18 billion coming from countries all around the world. Despite its size, Whirlpool Corporation (NYSE:WHR) has enormous growth potential that I feel is not fully priced into its shares. Several factors such as the improving U.S. housing market, increasing emerging market demand, and increased efficiency of their operations should produce double-digit earnings growth for Whirlpool for years to come. Let’s take a quick look at Whirlpool Corporation (NYSE:WHR), where it’s heading, and whether or not another appliance maker would be a better investment.
As mentioned, Whirlpool is the world’s largest manufacturer of appliances, with most of their products intended for home use. The company produces laundry appliances (30% of sales), refrigerators and freezers (30%), cooking appliances (17%), and other appliances (23%) which include dishwashers and small appliances.
While most of Whirlpool Corporation (NYSE:WHR)’s sales (52%) still come from North America, the company has a very large (and growing) international presence, particularly in Latin America. About 27% of the company’s sales come from the region, with the rest coming from mostly Europe and Asia. Whirlpool produces its appliances under several well-known brand names, including Whirlpool, Maytag, KitchenAid, Jenn-Air, Magic Chef, and others.
Growth and valuation
Sales of appliances have historically been correlated with the strength of the housing market. As a result, Whirlpool’s sales have been on a general decline since 2007, but have not suffered as much as other appliance manufacturers. According to IBISWorld, revenues of appliance manufacturers have fallen by an average annual rate of around 5.2% since the housing decline began, while Whirlpool Corporation (NYSE:WHR)’s sales have dropped from $19.4 billion to $18.1 billion in that time period, or an average annual decrease of just 1.3%.
This has been mostly fueled by Whirlpool’s impressive Latin American growth, and is expected to improve even more in the coming years as the U.S. housing market finally begins to significantly improve. The combination of this (particularly new home construction), and annual sales growth of around 5% in both Latin America and Asia should more than offset any weakness from Europe. Additionally, operating margins are expected to improve over the next few years due to increased efficiency and better pricing power that comes with a stronger economy.
Whirlpool Corporation (NYSE:WHR) is expected to earn $9.72 this year, increasing to $11.37 and $13.26 in 2014 and 2015, respectively, according to the consensus of analysts who cover the company. This translates to annual earnings growth of 17% and 16.6%, which more than justifies the current P/E of 17.8 times trailing twelve month earnings that Whirlpool currently trades for. Additionally, Whirlpool has relatively low net debt (debt minus cash), which has dropped by about 40% since 2009.