The improving housing market in the United States is fueling the demand for household appliances like dishwashers, refrigerators and washing machines, thereby enhancing the manufacturing sector and increasing shipments of such appliances. This is welcome news for investors looking for manufacturing stocks.
Below are three companies analyzed taking into account their margins and the vital ratios indicating the growth potential of each company.
*as of 5/2/2013
Source: Yahoo! Finance
iRobot Corporation (IRBT) has forayed into the healthcare segment and is poised to garner good revenues from it. The company, in collaboration with telemedicine company In Touch Health, is designing new robots that will help doctors diagnose patients in remote hospitals.
iRobot shares have surged as much as 15% on the news of positive 1Q2013 earnings and the optimistic full fiscal outlook. This is especially welcome since the stock tumbled in its fiscal year 2012 after facing severe challenges in its defense segments.
The company is still not getting enough support from the defense segment but the home robot business is spectacular, and as the housing market continues to recover, it will further dominate the market.
iRobot's board of directors has given approval for the purchase of $25 million of its common stock beginning March 28, 2013, and ending March 27, 2014, potentially with the intention of preventing a takeover by Google, which is being speculated.
The revenue for the company came in at $106.20 million, an increase of 8.6% from $97.81 million quarter-on-quarter. iRobot managed to improve its gross margin for the quarter by 540 basis points to 43.8& from last year's 38.4%, which indicates that the company has managed to earn profits on its revenues.
iRobot's P/E ratio stands at 32.03, which is the highest in the segment. This could be an area of concern for the company, potentially indicating that the stock may be overpriced. The PB ratio of the company, however, is mild at 2.74, which shows that the stock is not overheated and there is growth potential.
Whirlpool Corporation (WHR) is the industry leader worldwide in making and marketing home appliances and in the top five for market share. For the first quarter of 2013, the company posted adjusted earnings at $1.97 per share, an increase from $1.41 in 1Q2012. The upswing in profit is due to cutting costs and reducing capacity.
Revenue decreased approximately 2.3% year-over-year to $4,248.0 million, though Whirlpool managed to increase its gross margin by 220 basis points to 17.1% from 14.9% in last year's first quarter. Operating margin also expanded 130 bps to 6.6% compared to 5.3% in the first quarter of 2012.
The appliance maker has really made substantial efforts in increasing its profit in the gloomy economic environment where sales declined. It adopted strategies like cutting costs, closing some manufacturing facilities in North America and moving facilities to lower-cost countries such as Mexico. Whirlpool also implemented the use of common parts in a variety of appliances
A look at the vital numbers like P/E, PB and PEG ratio tell that the stock has ample room to expand. PEG is just at 0.43, PE is decent at 16.51 and PB comes under 5 at 2.14.
National Presto Industries Inc. (NPK) is a dominant player in manufacturing and providing housewares and small appliances, defense products and absorbent products, primarily in North America.
The earnings for the first quarter of 2013 declined for National Presto by about 26.6%. The company is facing increased costs and bad timing of defense-related shipments. The earnings came in at $6.9 million, a decline from $9.3 million from the corresponding quarter of 2012. Sales also declined from $96.8 million in the first quarter of 2012, to $83.2 million this year. This is largely due to the difference in the timing of 40-millimeter ammunition shipments, as well as a decrease in absorbent product shipments.
The PB ratio of the company is 1.78, which indicates that the stock has some upside potential. NPK's profit margin based on trailing twelve months is 8.23% and its operating margin is at 13.85%, which is not very strong.
Out of the three companies discussed, iRobot and Whirlpool are best poised to take advantage of the improving housing market. iRobot has been able to improve its margins along with revenues, however, its high P/E might scare off some investors. Whirlpool is exceptionally strong as it managed to earn profits and improve its gross margin even when sales were down. National Presto, on the other hand, has been facing significant challenges, and as is evident in the company's quarterly results, does not seem ready for an uptick in the U.S. home recovery.
Disclaimer: Black Coral Research, Inc. is not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes. Investing involves risk, including the loss of principal. Readers are solely responsible for their own investment decisions.