This Is Why Whirlpool (NYSE:WHR) Will Pop After Reporting Q4 Earnings

Whirlpool Is Riding A Secular Wave Of Growth

 Whirlpool (NYSE:WHR) is one of the company’s that you may not see as a big pandemic winner but let me remind you of two things. The first is that the shift to stay-at-home, home-improvement and the flight to the ‘burbs caused an industry-wide shortage of product. The backlogs on many appliances are running into the 4 to 6-month range, and the building data only compounds the problem. Homebuilding surged to record highs at the end of 2020 and is not expected to abate any time soon. The situation is leaving needy homeowners and homebuyers in the lurch but means guaranteed business for Whirlpool and other appliances makers over the next few years at least. The only thing standing in the way of Whirlpool is Whirlpool itself. If they can make the product someone is waiting to buy it.

 The Q3 Results Were Strong, Guidance Is Positive

Whirlpool was not immune to the pandemic but the company is well-supported by the rebound. Shut-downs and disruptions in production led to a -22% decline in revenue for the 2nd quarter the company has already recovered from. The 3rd quarter revenue not only rebounded by 31% sequentially but the company produced single-digit YOY growth. The company is still expecting negative YOY growth for the full-year but the signs point to accelerated revenue in the 4th quarter and very likely above the company’s already generous guidance.

"Looking ahead, while uncertainty remains, our Q3 performance serves as an additional proof-point that we are well-positioned to capitalize on the structural improvements in housing and consumer trends, and firmly demonstrates the viability of our long-term shareholder value creation strategy,” said Whirlpool CFO Jim Peters.

Data from Best Buy (NYSE:BBY) supports the idea that appliance sales were robust going into the final quarter of the year. The big-box retailer reported a 22.0% rise in comps that was driven by a 173% increase in eCommerce and underpinned by a 39.3% surge in U.S. appliance sales.

The Analysts Are On The Fence With Whirlpool

The analysts regard Whirlpool as a Hold but that doesn’t reflect the most recent data. The most recent calls came out more than two months ago and the fundamental demand situation has only improved in the time since. In that light, Whirlpool is set up to beat its consensus estimates which, for some reason, leveled off after rebounding in the 3rd quarter. The consensus estimate for Q4 earnings is a mere $6.20 which implies a sequential decline for a company leveraged for accelerated earnings growth. If anything, the company should easily top the $5.6 billion revenue consensus and deliver both sequential and YOY earnings growth as well.

“We maintain our Overweight rating on WHR, as we continue to point to an attractive valuation that we believe does not fully reflect the company’s significantly improved and more profitable North American business, which has consistently generated double-digit and expanding operating margins over the last several years, as well as the longer-term turnaround potential of its European business,” said J.P. Morgan analyst Michael Rehaut when he raised his price target on WHR to the Wall Street high of $237. The consensus target implies a 6% downside on WHR, J.P. Morgan sees the stock trading 18.5% higher.

The Technical Outlook: WHR Is In A Range With A Bullis Bias

Shares of WHR have been trapped in a trading range over the past few months but that is going to change very soon. The stock is still moving sideways within that range but the recent price action has a bullish bias going into the Q4 earnings report. There is a chance for resistance at the $206.50 level that may be amplified by a rising short-interest. The short-interest in WHR is above 6.0% a few days before the release and will likely add to volatility if nothing else. In the bullish case, a positive report will spark short-covering that will combine to drive price action up to new highs. In the bear case, rising short-interest will cap gains and/or spark a move lower. In either case, WHR and its safe 2.5% yield are an attractive buy.