Bear of the Day: Whirlpool (WHR)

Whirlpool Corporation manufactures and markets home appliances and related products globally. Its principal products include refrigerators, freezers, ice makers, water filters, laundry appliances, and dishwasher appliances.

The company distributes its products under well-known brands such as Maytag, KitchenAid, Whirlpool, Everydrop, and Amana. Whirlpool sells its products to retailers, distributors, builders, and other manufacturers, as well as directly to consumers.

Ongoing operational challenges continue to plague Whirlpool. The company’s performance remains pressured by cost inflation, elevated promotional activity and a weak housing market, weighing on margins and near-term earnings visibility.

Whirlpool operates in a highly competitive home appliance industry with rivals such as Bosch, Electrolux, Haier, Kenmore, LG and Samsung. The company faces stiff competition in areas such as selling price, product features and design, consumer taste, and quality. With more and more companies adopting e-commerce channels and direct-to-consumer business models, the company’s market share is under pressure.

The Zacks Rundown

Whirlpool WHR has been severely underperforming the market over the past year. A Zacks Rank #5 (Strong Sell), the stock experienced a climax top in January of last year and has been in a price downtrend ever since. The stock is hitting a series of 52-week lows and represents a compelling short opportunity.

Whirlpool is part of the Zacks Household Appliances industry group, which currently ranks in the bottom 19% out of approximately 250 industries. Because this industry is ranked in the bottom half of all Zacks Ranked Industries, we expect it to underperform the market over the next 3 to 6 months, just as it has over the past year:

Image Source: Zacks Investment Research

While individual stocks have the ability to outperform even when included in weak industries, their industry association serves as a headwind for any potential rallies. Stocks in this industry are also expected to post below-average earnings growth. With much better alternatives in the current market environment, this stock should be avoided.

Weak Foundation: Earnings Misses and Deteriorating Forecasts

Earnings misses have been a sore spot for Whirlpool lately. The household appliances company most recently reported Q4 earnings results back in January of $1.10/share, which represented a 28.57% miss versus the $1.54 consensus estimate. Revenues of $4.1 billion also missed the mark by 3.96%. Consistently missing expectations by a wide margin is a recipe for stock price underperformance.

Analysts have revised Q1 earnings estimates down by 16.05% in the past week. The Zacks Consensus Estimate now stands at 68 cents per share, reflecting a 60% plunge relative to the same quarter last year. Revenues are seen slipping 5.3% to $3.43 billion. These are the types of negative trends that the bears like to see.

Image Source: Zacks Investment Research

Technical Outlook

WHR stock has been steadily falling since last year and has now established a well-defined downtrend. Notice how both the 50-day (blue line) and 200-day (red line) moving averages are sloping down. Shares have declined nearly 25% already this year, and the stock continues to trade below both moving averages.

Image Source: StockCharts

Whirlpool stock has also experienced what is known as a “death cross,” wherein the stock’s 50-day moving average crosses below its 200-day moving average. Shares would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock.

Final Thoughts

A deteriorating fundamental and technical backdrop show that this stock doesn’t deserve a spot in the household portfolio. The fact that WHR stock is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. Falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.

WHR stock is rated a ‘D’ in our Zacks Momentum Style Score category, indicating more weakness ahead is likely. Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy.

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This article originally published on Zacks Investment Research (zacks.com).

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