Cleaning Up With Whirlpool?

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Kevin Kersten 08/11/2014

One has to love the convenience of modern appliances. Rather than bend over in a stream and beat our clothes against a rock, today we just throw them in a washing machine with a little soap and an hour later they come out clean. We still have to move them into the drier and fold them, but it is so much faster than days gone by. We can wash and dry clothes regardless of the weather. We can always look good, smell good, and be clean.

Then there are the refrigerators. Yes, it is convenient to go get a glass of cold milk or have ice at the touch of a button. We can keep food fresh for a long time. It is great to have a frozen pizza, or keep leftovers fresh for a week, but until the refrigerator has broken, it is hard to realize how important it is to our daily lives. People in other parts of the world have to cook their food fresh each day, and that is time consuming and results in wasted food.

Whirlpool is major appliance maker. The company is bringing convenience to millions of people around the world. Whirlpool ( WHR ), is worth about $11 billion in total and its shares trade near $143.41 on the NYSE. The stock has ranged from $124 to $160 over the last year and the company seen revenues of $18 billion annually over the last four years. The company makes a variety of appliances under the Whirlpool, Maytag, KitchenAid, Jenn-Air, Magic Chef, Amana and other brands. Laundry makes up 29% of sales, refrigeration 29%, cooking 18% and other appliances about 24%.

Whirlpool is a global company that gets about half (54%) of its sales from North America. About a quarter of sales come from Latin America, and much of the rest comes from Europe. Given that a large proportion of the world's population is still washing clothes by hand, there are still huge growth possibilities.

While many people would like new or upgraded appliances, they can be expensive and the global recession has kept growth in check. While revenues have been flat over the last few years, earnings have not been. The company has been growing earnings from $4.34 a share in 2009 to an estimated $11.75 a share in 2014. Whirlpool has been working with a number of local partners to expand product lines and improve quality in the recent years.

Whirlpool reported that earnings fell in the most-recent quarter, with china serving as a major source of the decline. Whirlpool is working to purchase a local appliance maker and revamp its product line. Approval for the merger is running behind schedule and with new models set to launch soon, appliance retailers have cut down on orders. No one wants to be stuck with a bunch of old or outdated appliances, so one can understand where appliance retailers are waiting for the new models.

With earnings growing, Whirlpool looks attractive. While revenues have not seen a big movement, the company has booked profits by cutting costs and building quality products. Whirlpool is already feeling the effects of a growing US economy, when world markets turn around the business could be ripe for sales to rise.


Chart courtesy of stockcharts.com

Given high potential for growing sales and healthy margins, the business should be growing soon, however until those numbers come in, one might want to sell a covered call, pulling in some premium in the meantime. With Whirlpool going for $145.80 the December 145 call has a bid $8.75 and an ask of $9.15. One can split the bid-ask spread and round to $9.00 for the call. A $136.80 net debit ($145.80-$9.00) has a 6.0% return over the next 134 days. Annualized (for comparison purposes only) that is a 17.7% return. The company also pays a dividend yield of 2.1%.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Originally published on InvestorsObserver.com


This article appears in: Investing , Options

Referenced Stocks: WHR

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