Home prices are still cheap compared to their pre-bubble highs, but most housing-related stocks, such as Home Depot (HD) passed into pricey territory long ago when the housing recovery was just beginning to take hold.
Whirlpool (WHR), manufacturer of the eponymous washing machines, as well as leading home appliance brands Kitchen Aid, Amana and Maytag, looks to have the same valuation problem, with a trailing 12 month PE ratio above 22. But as the chart below shows, it’s downright cheap when you switch your glance to the PE ratio based on estimated earnings over the next 12 months.
That’s a function of an expected major pickup in earnings this year. Whirlpool management recently reiterated diluted earnings in the range of $9.80-$10.30 a share. Even at the low-end of their range that’s a big jump from the $5.06 for the trailing 12 months. A big catalyst is the expectation that resurgent U.S. housing starts (new homes need new appliances) and home buying activity (new homeowners tend to like bright shiny new appliances) are just getting going.
Indeed, Pimco’s chief corporate bond manager, Mark Kiesel, recently told Bloomberg he expects annual housing starts to average 15% into at least 2015, and that housing in general will “surprise people on the upside.” Whirlpool bonds are in Pimco portfolios as a way to ride the housing rebound.
For the year, Whirlpool expects U.S. appliance demand -- where it has the largest market share -- to rise by 2%-3%. It also expects demand in Latin America -- where it also is #1 in market share -- to grow by 3% to 5% this year. With its eye on revenue growth of at least 5% this year, the firm expects free-cash flow to more than double from last year’s $230 million to $600-$650 million this year.
Carla Fried, a senior contributing editor at ycharts.com, has covered investing for more than 25 years. Her work appears in The New York Times, Bloomberg.com and Money Magazine. She can be reached at firstname.lastname@example.org.
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