Whirlpool Stock To See Declines in Long Term?
Whirlpool’s stock (NYSE: WHR) grew 25% year-t0-date to around $185 levels, and also outperformed the S&P index which moved 14% YTD. The company was able to beat market expectations on revenue and earnings in all three quarters this year. After this increase, however, we believe that Whirlpool’s stock is poised to decline going forward. This is taking into account Whirlpool’s revenues which saw a 9% year-over-year decline so far in fiscal 2020. In addition, the home appliance manufacturer’s compounded annual revenue growth also declined by 2% prior to the pandemic (during the 2017-2019 period). All of these elements lean toward an inconsistent organic revenue decline that could continue post-Covid, resulting in a possible downturn in the company’s stock price. Our dashboard, ‘What Factors Drove 10% Change In Whirlpool Stock Between 2017 And Now?‘ provides the key numbers behind our thinking, and we explain more below.
Whirlpool’s stock declined 37% from $169 in 2017 to around $107 in 2018. However, the stock partially bounced back to $148 in 2019. Over the 2017-2019 period, the company saw a slump of 4%, primarily due to the divestiture of the Embraco compressor business, unfavorable foreign currency, and unit volume decline. It should be noted that the company’s shares outstanding decreased by 9% during this period, which led the revenue per share metric to grow 5%.
Finally, Whirlpool’s P/S multiple declined slightly from around 0.6x in 2017 to around 0.5x in 2019. While the company’s P/S is now 0.6x, there is a downside risk when the current P/S is compared to levels seen in the past years.
So what’s the likely trigger and timing for the further downside?
The Covid-19 pandemic reduced Whirlpool’s revenue and earnings, but the negative impact was partially mitigated by significant cost reductions. All-in-all, the company’s net sales were down 5% year-over-year (y-o-y) for the North America region (which held up reasonably well), compared to drops of 5% in Europe, Africa, and the Middle East; 21% in Asia; and 26% in Latin America. For 2020, Whirlpool’s management expects net sales to fall 5% to 7%.
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Whirlpool’s sales product mix shifted in the direction of large appliances, due to selling more freezers, microwaves, lower-end refrigerators, washers, and dryers. But this pandemic buying boost could only be short-lived. Furthermore, due to the pandemic, there is a rise in unemployment and lower consumer sentiment, and it can potentially have an adverse impact on holiday sales.
The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again.
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