Although this week's focus stock isn't a high dividend stock, like some of the stocks in our recent articles, it does have attractive options yield, and looks attractive on a long term basis, which is why we've included a long-term put options trade in this article. This household name also has turned around its prospects recently, going from negative to strong growth, and it looks undervalued on a PEG basis.
Whirlpool, (NYSE:WHR), is the world's leading manufacturer and marketer of major home appliances, with annual sales of approximately $18 billion in 2012, 68,000 employees, and 65 manufacturing and technology research centers around the world. The company markets Whirlpool, Maytag, KitchenAid, Jenn-Air, Amana, Brastemp, Consul, Bauknecht and other major brand names to consumers in nearly every country around the world. WHR enjoys a #1 market share globally, and in North America and Latin America.
It's not as dominant in Asia, where its operating profits were flat in its most recent quarter, but that should improve soon - WHR just announced that it will acquire a 51% majority stake in Chinese appliance manufacturer Hefei Sanyo for approximately $552 million. Whirlpool expects that this transaction will be accretive in the first full year of integration.
WHR has dropped over 11% from its 52-week high over the past few weeks, with a big hit on 10/14/13, after an analyst cut his Q3 earnings forecast to $2.50, (down by $0.25), and his Q4 forecast to $3.00, (down by $0.15), citing delayed customer purchases in September and early October, due to consumer unease caused by the debt ceiling standoff. WHR reports before the open on Tuesday, 10/22/13, and Thomson First Call analysts expect EPS of $2.64, which would be a 47% increase over Q3 2013. Even if WHR only earns $2.50, this would still be a 39% gain over Q3 2012's adjusted earnings.
Dividends: WHR raised its quarterly dividend by 25% in May 2013, to $.625 from $.50. Although its 5-year dividend growth rate of 3.06% isn't robust, WHR did keep its dividend steady, at $.43 throughout the financial crisis, and then raised it to $.50 in May 2013.
Long & Mid-Term Opportunity: With its recent pullback, WHR's put options are offering attractive yields. Our Cash Secured Puts Table lists these 2 trades, one which expires in March 2014, and the other in January 2015.
While both of these trades have a $130.00 strike, which is below WHR's price as of this writing, the big $ difference in the 2 put option premiums is due to time value - the long-term, January 2015 put pays $20.35, a 15%-plus nominal yield, and offers you a lower breakeven of $109.65, but it has a lower annualized yield, of 12.37%, due to its longer holding period. The March 2014 trade pays less, and has a higher breakeven, but it also has a higher annualized yield, since it expires in 5 months, vs. 15 months for the 2015 trade:
Covered Calls: WHR also has attractive call option yields. This March 2014 $135.00 call trade, from our Covered Calls Table, pays out $11.00, similar to the March put trade, but it also offers you an opportunity to collect $1.25 in dividends, and/or a potential $1.43 in price gains:
These are the 3 major scenario outcomes for this trade:
Earnings Valuations: Although WHR is closer to the upper end of its 5-year P/E range, it does look undervalued on a 2013 and 2014 PEG basis. In addition, it also has a low .59 forward 5-year PEG value, thanks to the 30%-plus earnings average analyst forecast:
Segment Operating Profits: WHR still gets the lion's share of its earnings from the Americas segments, but, with the addition of the Chinese acquisition, which is expected to close in 2014, and to be accretive in its first year of integration, and a recovering economy in northern Europe, its earnings should continue to grow nicely, and become more diversified.
Even though its revenue growth hasn't been robust in the trailing 4 quarters, WHR has made big gains in profitability, thanks in part to its restructuring program:
More Valuations: WHR's forward P/E is significantly lower than its TTM P/E, and it also looks undervalued vs. its industry, on a Price/Sales basis. It commands a higher Price/Book, as is often the case with industry leaders:
Financials: WHR's management efficiency ratios look roughly comparable to its peers, although its ROE is much higher. Its debt load is heavier, but it has an Interest Coverage ratio of 3.01.
Disclaimer: This article was written for informational purposes only.
Disclosure: Author was short WHR put options at the time of this writing. I am long WHR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. I'm long WHR, via being short WHR put options.