Whirlpool (NYSE:WHR) Is About To Take The Shorts To The Cleaners

Don’t Say We Didn’t Warn You About Whirlpool

Whirpool (NYSE:WHR) reported earnings a few weeks ago and by all accounts the report was good. At the time, my colleague here on MarketBeat.com Nick Vasco did a great piece on the stock. For him, a variety of factors added up to one thing; Whirlpool was still a great value even while trading at a fresh two-year high. Some highlights of the report include better than expected despite a YOY revenue decline, rising pipeline orders, margins were holding up, free-cash-flow is expected to turn positive, and guidance was raised. That’s why I can’t understand why the short interest is so high right now.

With all that going for it, Whirlpool is still only trading about 13X its 2020 earnings and 11X next year's. I don’t doubt the company had some trouble with the pandemic but there is something you have to understand. Whirlpool is fundamental to the stay-at-home, work-at-home, play-at-home mentality that has gripped America, an 11.5% short-interest is betting against not only that but a rising tide of home building that demands new appliances. With the broader market trading near 22X its earnings, Whirlpool should be rocketing higher.

This Is Why The Shorts Should Be Scared Of Whirlpool

The reason why the shorts should be scared is demand. Demand is so high the company’s business is more than assured for the foreseeable future. Indeed, based on comments I’m hearing out of the appliance sales industry it could be years before all is caught up and back to normal. You see, while production was impacted during the virus sales weren’t. Sales have steadily risen throughout the pandemic and caused such a back-log there is really no way to know when products will be delivered. As long as Whirlpool can keep factories open it can sell appliances.

“Only two items came off back order overnight. Out of well over 200. I’m getting phone calls ‘where’s my stuff?!’ Every day. As if it’s my choosing who gets what when. We are taking more product out (of inventory) than is coming in and my warehouse seems so big now. This has to end.”

Looking forward, the company sees full-year results coming in ahead of previous expectations but I think even they are underestimating the market. The consensus is near the middle of the range, negative revenue growth near -12%, setting the company up to beat when it next reports. Beyond that, Whirlpool is expected to stage a stunning rebound in 2020 that will produce double-digit revenue growth and bring operations back to their pre-COVID levels. Considering the company is a cash-producing juggernaut I’d say that is great news and no reason to short this market.

This Is Why The Bulls Love Whirlpool

One of the many reasons to love Whirlpool is its dividend. It only has a ten-year history of consecutive increases but the overall history smacks of Dividend Aristocrat quality. Whirlpool has paid a dividend since 1989, just over 30 years, and has only ever increased it. The last ten years on a consecutive annual basis until the pandemic hit. Out of prudence, execs decided to maintain the payment at the previous level this year. The yield, with shares trading at $175, is close to 2.75% so attractive enough in is own right.

Yes free-cash-flow turned negative in the first half of the year but that is a one-off time associated with costs related to the pandemic compounded by shut-downs. On a forward-looking basis, free-cash-flow will turn positive in the current quarter and grow over the next six.  Looking to the balance sheet, the company is well-capitalized, has ample cash on hand, reasonably low levels of debt, and plenty of coverage. No worries here. There may not have been an increase this year but there’s sure to be another one within the next few quarters.

The Technical Outlook: At A Peak But Don’t Get Bearish

Shares of Whirlpool have been trending steadily higher since hitting the March bottom and might be at a peak. That said, I’d be ready to scoop up some more of these shares rather than sell out my holdings. At best, I’d say this stock could fall 10% in the near term but I just don’t see that happening. The long-term weekly charts are strongly bullish and suggest any downturn in prices would be met by buyers.

On the flip side, today’s action has prices trading at its post-pandemic highs. Value-oriented dividend-seekers could put enough pressure on the shorts (don’t forget about them) and spark a short-covering rally in the stock. A move up to retest highs near $200 would be the least I would expect; if the bulls carry price action above that level $220 is the next target.