Is High-Yield Whirlpool A Value Trap?

High-Yield Whirlpool Provides Value And Yield 

Shares of Whirlpool (NYSE: WHR) are trading under 7X the consensus for earnings and offer a deep value relative to the broader market (NYSEARCA: SPY). The question that should be asked, however, is this value a trap that will tie up investor capital with little to no return? Based on the dividend, the share repurchase program, and the outlook for free cash flow, the odds are in favor of Whirlpool shares moving higher over the long term. The dividend alone is worth 4.0% to investors, and it is a safe payout by Wall Street standards. 

Not only is the company paying out a low 24% of the earnings, but the balance sheet and cash flow are healthy. Based on these metrics the company should not only be able to continue paying the dividend but to continue increasing the annual distribution as it has done for the last 12 years, and there is more. Whirlpool is an active repurchaser of its own shares and bought back about $300 million worth during the quarter. That’s about 3.2% of the current market cap and puts the company well on track to hit the $1.5 billion capital return target set for this year. 

Whirlpool Advances On Mixed Results 

Whirpool delivered mixed results in regard to growth, but there are two takeaways from the report for investors to focus on. The first is that GAAP results were deeply impacted by non-recurring and non-cash charges attributed to the sale of the Russian business and impairments to assets in the EMEA region. The second is that operating results were still better than expected and accompanied by very strong margins. On the top line, the company reported $5.1 billion in net revenue for a decline of 4.1% versus last year. The revenue is 270 basis points better than expected, however, and that includes a 180 basis point headwind from FX conversion. 

Price and mix are at play within the top-line results, adding 675 basis points to the top line as well as aiding the margin. On a segment basis, North American sales declined by 2.6% due in large part to supply chain issues, while Latin America fell by -0.5% and EMEA (including impairments) fell by nearly 20%. Asia is the one stand-out region with a gain of 25%, but this is against a very easy comp versus last year’s COVID lockdowns, and the real news is on the bottom line. The company reported an EBIT margin of 9.0% in its ongoing business and adjusted EPS of $5.97, which is $0.68 better than expected. 

The guidance news is mixed as well but tempered by two things. The first is the exit from Russia, the second is that FCF is expected to be strong. The company lowered the outlook for both revenue and earnings to a range below the Marketbeat.com consensus but maintained the FCF outlook, which is great news for income investors.

The Technical Outlook: Whirlpool Steadies In Wake Of Report 

Shares of Whirlpool have been in a downtrend for several quarters, but it looks like that trend is over. The stock hit a bottom a few weeks before the report was released, and the price action is stable in its wake. Assuming the market is able to hold support at the current levels a move above $170 is possible. A move above $170 is technically bullish and could lead the stock up to the $180 level and into a full reversal. If not, shares of this stock could remain range bound at current levels until there is more clarity on the 2nd half of 2022 and the 1st half of 2023 activity.