While reviewing the top percentage losers on the NYSE this morning, I spotted two “old economy” names among ranks often dominated by newer, wilder types. Their identities? Whirlpool (NYSE: WHR) and Maytag (NYSE: MYG), boring stocks selling for, respectively, 12 and 13 times 2005 estimated earnings. Their shares are down today on news that Home Depot (NYSE: HD) will be adding another line of home appliances, made by Korean competitor LG.
But there’s good news to consider, too. Reuters reported on Tuesday that appliance-selling giant Sears (NYSE: S) had boosted prices. That’s great news for Whirlpool, Maytag, and Electrolux (Nasdaq: ELUX), who are hoping the recent industrywide price increase of about 5% will last.
These companies need to defray a medley of cost increases in things ranging from electric power to raw steel. Look no further than Whirlpool’s last earnings report to see that record sales are not producing record profits.
Over the last 12 months, Whirlpool has generated $357 million in free cash flow — a modest 2.7% of revenue over the same period. But raw cash flow from operations was a much-higher 6%, and those familiar with accrual studies will note that when operating cash flows exceed net income (the profit margin is 3.4%), it’s a good sign. Whirlpool also paid investors a tempting 2.4% dividend.
The news for Maytag is not so sanguine. It has been going through a brutal restructuring. Still, the company expects to earn between $1.50 and $1.60 a share in 2005 (analysts expect around $1.50). For comparison, shares last traded at $18.35. But, with total debt at 25 times equity (yikes!), there is plenty of risk here. The stock has taken a tumble, too, and not just today — it has declined 34% over the last 52 weeks.
It should be no surprise that Whirlpool gets my vote as the better of the pair. Considering the stock now trades at a modest 12 times 2005 projected earnings, I’d wager the new competition is now fully priced into the stock. With appliance price increases looking like they’ll stick, the stock could be an overlooked value in a high-priced market.
From Motley Fool .com