SodaStream International Ltd (SODA), Whirlpool Corporation (WHR): Playing the Housing Recovery with Appliances

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A strong housing market in the US, as evidenced by higher home prices and a greater number of people buying homes, has lifted stocks in a variety of industries. While most investors would look to the traditional housing stocks as a means to profit from this development, many seem to overlook an industry that naturally stands to benefit, namely home appliances. As one of the world’s top appliance makers, Whirlpool Corporation (NYSE:WHR) looks like an excellent opportunity to get in on the housing recovery, trading at a discount to its main competitor.

The Basics

Whirlpool Corporation (NYSE:WHR) is a well-known name in appliances, producing durable consumer goods such as washing machines, refrigerators, freezers, dishwashers and mixers. Its brands include names such as MayTag, KitchenAid and Privileg. The company has a strong global presence, as well as a sizable lead over the competition in terms of market share. The stock has a market cap of around $10.6 billion, and is up a whopping 81% in the last twelve months. It yields about 1.9% at a very low payout ratio of 26%.

Investment Thesis

Whirlpool Corporation (NYSE:WHR)As mentioned in the introduction, Whirlpool Corporation (NYSE:WHR) stands to benefit from the surging housing market in the United States. Home sales have increased some 15% compared to a year ago, whereas home prices are up between 7% and 12%. With more people buying new homes, there is naturally higher demand for new home appliances, as this is something people frequently invest in when moving into a new residence.

For Whirlpool Corporation (NYSE:WHR), this has translated into some solid earnings beats over the last few quarters. Analysts are expecting a 3-5 year growth rate of 13.2%, which is well above the 5.4% industry average. While the latest report missed estimates by around 2%, Q2 2013 earnings showed strong growth across the board, with GAAP EPS up an impressive 71%, prompting the company to also raise its full-year guidance.

Whereas the company had previously projected growth of between 2% and 3% in North America, it now expects between 6% and 8%. With a strong line of brands, and plenty of cash to fuel further product innovation, the company expects this strong growth to continue. The company now expects full-year EPS of $10.05-$10.55, versus a previous $9.80-$10.30. Moreover, it expects continued margin expansion throughout the year, fueled in part by cost-cutting initiatives and pricing.

Another boon for the company going forward is the recently-announced partnership with SodaStream International Ltd (NASDAQ:SODA), a fast-growing company that allows you to make your own carbonated drinks at home. Under this collaboration, the KitchenAid brand will be releasing a home carbonation system in the fourth quarter of the year, which is expected to greatly benefit Whirlpool Corporation (NYSE:WHR) as well as SodaStream by bundling the customer bases of both. In any case, SodaStream’s CEO is very pleased with the deal, saying it should allow the category to “reach an even broader global audience.”

Another large appliance maker that stands to benefit from the housing recovery in the US is the Swedish Electrolux AB (ADR) (OTCMKTS:ELUXY). The company saw the North American core appliances market up by 9% last quarter, and as it continues to gain some market share in the region, and expects this strong growth to continue throughout the year, boosted in part by several new product launches.

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