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Here's Why Whirlpool (WHR) Remains an Investor Favorite?

Whirlpool Corporation WHR, one of the leading global manufacturers of home appliances, has been in investors good books on the back of cost productivity initiatives, solid innovations and robust product pipeline. These initiatives have aided the company outperform the Zacks categorized Consumer Discretionary sector in the past six months. Shares of the company grew 10.2% while the sector depicted a growth of 1.9%.

Let’s now delve deeper into some of the factors that have been impacting Whirlpool’s performance.

Factors Aiding Growth

Much of Whirlpool’s growth in the past is attributable to its innovation strategy, which forms the core of its business model. The company invests heavily in technologies to produce differentiated products to suit the needs of their end consumers. Evidently, the company has inked a deal with Amazon, to introduce voice-controlled home appliances. Additionally, the company is keen on boosting revenues of its core appliance business through expansions and investments. This should aid in fuelling growth of its high-margin categories.

Further, the company remains on track to deliver on its long term goals for 2020, backed by its brand strength and product portfolio. The company aims to deliver organic revenue growth of 3–5% every year. Further, the company anticipates growth efforts to boost consumer demand and lead to enhanced price mix. This, in turn encouraged management to target its EBIT margin to exceed 10% by 2020. Further, the company envisions earnings per share to grow by 10–15% each year. Also, Whirlpool anticipates free cash flow generation of 5–6% of revenues by 2018. While the company lowered earnings outlook for 2017, other operating guidance remains in line with management’s long-term targets.

The company is also striving to improve its margins through a series of measures, including cost-based price increments and cost-reduction initiatives focused on improving business efficiency. In the first-quarter 2017, Whirlpool’s ongoing cost productivity along with cost-reduction and capacity-reduction initiatives remained on track, offset by higher raw material inflation and unfavorable currency. Backed by improved cost productivity and unit volume growth the company expanded margins by over 70 basis points in the quarter. Further, the company anticipates delivering full-year 2017 margins in the range of 11.5–12%, at or above industry levels.

Not only this, Whirlpool follows a balanced capital allocation approach that focuses on making appropriate capital allocations to fund its capital needs as well as return value to shareholders. The recent 10% dividend hike highlights the company’s financial strength and focus on shareholders.

Waning Bottom-Line Poses Concern

Driven by raw material inflation and temporary integration challenges in Europe, Whirlpool’s first-quarter 2017 earnings lagged estimates for the third consecutive quarter and dipped year over year. Integration related challenges also led the company to trim its earnings forecasts for 2017.

Given the pros and cons, Whirlpool currently carries a Zacks Rank #3 (Hold).

Bottom Line

Whirlpools, cost containment efforts are quite noteworthy and have been yielding significant results. We believe that Whirlpool’s long term targets, coupled with its strong brand portfolio will further improve its performance. However, we prefer to wait and watch if these efforts can help the company sustain its momentum.

Moreover, Whirlpool’s long term earnings growth rate of 15.9% makes us confident of its inherent strength. Estimates for second quarter and fiscal 2017 have been stable at $3.57 and $15.08, respectively, in the past 30 days.

Key Picks

Investors may consider better-ranked stocks such as The Children's Place, Inc. PLCE, carrying a Zacks Rank #1 (Strong Buy) as well as Best Buy Co., Inc. BBY and Burlington Stores, Inc. BURL, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Children's Place delivered an average positive earnings surprise of 36.6% in the trailing four quarters and has a long-term earnings growth rate of 8%.

Best Buy delivered an average positive earnings surprise of 33.8% in the trailing four quarters and has a long-term earnings growth rate of 11.8%.

Burlington Stores delivered an average positive earnings surprise of 22.6% in the trailing four quarters and has a long-term earnings growth rate of 15.9%.

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