Whirlpool: Made in America, Succeeding Abroad

Nov.22.07 | About: Whirlpool Corporation (WHR)

Wednesday, I bought Whirlpool (NYSE:WHR) at $73.25 per share. The stock closed the day at $76.03.

Whirlpool is the world’s largest manufacturer of household appliances. Its market cap is almost $5.8 billion with approximately 78 million shares outstanding. The stock is trading at less than 10 times estimated 2008 earnings and one-third annual sales. The dividend yield is just over 2%.

Whirlpool stock traded for $118.00 this summer but has come down significantly.

Why? Primarily because the company’s fortunes are seen as being tied to the US housing market. Yet Whirlpool reports that just 18% of US shipments are linked to new residential construction -- with more than two-thirds of shipments going for replacement purposes.

Plus, Whirlpool shouldn’t be thought of as a domestic US appliance outfit. A recent Barron’s Online article reports that the company makes 20% of the world’s major appliances -- including washers, dryers, refrigerators, freezers, dishwashers and ranges. The company expects double-digit growth outside the US, especially in Latin America and Asia.

Another reason for investor caution on Whirlpool is the uncertainty surrounding Sears (NASDAQ:SHLD), Whirlpool’s biggest customer. But the acquisition of Maytag in 2006 (and Whirlpool’s revitalizing of that brand) means the fate of Sears is much less of a concern. Maytag gives Whirlpool distribution reach into 95% of appliance outlets, up from 75% before the purchase, and most importantly entry to Home Depot.

This is yet another holding of Meryl Witmer’s firm. And her firm added to Whirlpool in the last quarter. What’s more, Whirlpool Chairman and CEO Jeff Fettig bought $843,290 worth of the company’s stock (paying $84.33 per share) in the open market in October. Of course, the actions of Witmer and Fettig guarantee nothing about future stock performance.

What are the risks with this pick? Primarily unfavorable changes in business conditions in the company’s markets; further increases in raw material costs (which have been a problem); and delays in achieving benefits expected from acquiring Maytag.

In all, I find Whirlpool stock compelling at current prices. But as I always caution, please do your own due diligence before adding this name to your portfolio.

Disclosure: Author holds a position in WHR