By Tim Seymour
The middle class in emerging markets is buying more and more appliances. Look no further than Latin America -- and Brazil in particular, where producers and retailers of small- to medium-sized appliances are booming.
Take a look at the chart below of Arcelik in Turkey, a maker of washing machines, cooking appliances, refrigeration, motors, etc. You can see what's going on with the Turkish middle class.
Michigan-based appliance manufacturer Whirlpool (WHR) is growing its exposure to those markets. Why Whirlpool?
- A Dec. 19 U.S. ruling in an appliance dumping claim by WHR against South Korean and Mexican manufacturers gives confidence to Whirlpool that the competitive behavior in North America is now more benign than 12-18 months ago. It’s also interesting to look at LG and Samsung.
- Expect upside to consensus EPS expectations from positive margin estimated 200bps of margin progression. This means it can trade at a higher multiple.
- Latin America is 26% of sales, having grown from 14% five to seven years ago. That's the emerging market middle class.
- Whirlpool trades at a premium to its five-year average P/E (7.5x). But at a current P/E of 14x, it's at a discount to its peers globally, such as Electrolux at 18x and DeLonghi at 17.5x.