MKM Just Met With Whirlpool's Management Team; Here's Why The Stock Is Still A Buy

MKM Partners’ Megan McGrath maintained a Buy rating for Whirlpool Corporation (NYSE: WHR), with a price target of $175.

The bull thesis reflects that the US market has tailwinds in 2016 for both topline and margin, Europe is likely to continue benefiting from acquisition synergies and strong cost management would enable the company to adjust to volatility in emerging markets faster than many of its competitors, analyst Megan McGrath said.

McGrath mentioned the key takeaways from meetings with management:

• Haier/GE Acquisition: Chinese company Haier Electronics Group Co Ltd (OTCMKTS: HRELF) plans to acquire the appliance business of General Electric Company (NYSE: GE). The analyst believes that Haier would be a more “rational competitor,” since it would not be pursuing an import model in the US and would not be using the US appliance business “as any type of loss leader.”
• Balance Sheet/Cash Flow: Whirlpool may prioritize share buybacks in the near term. Management’s projection of $20-$22 in EPS for FY18 does not “fully allocate possible uses of FCF, including buybacks or M&A” and the company continues to target dividend of 25-30 percent of net income.
• NA Competitive Environment: Management indicated that the NA promotional environment had not changed significantly over the past few years. Whirlpool does not intend to “chase promotions that destroy value.” Although Canada could suffer from a large FX drag in 2015, the company may be able to raise prices to offset some of the FX impact, since no appliance manufacturer has plants in Canada.
• Europe: Management indicated that many of the synergies in 2016 would be a result of the merging of legal entities in each country. WHR is expecting $175mn in synergies in Europe in 2016.
• Emerging Markets: Whirlpool has invested heavily into these markets, and considers itself well-positioned for significant margin expansion when these economies recover.