Cowen is upgrading Whirlpool (NYSE:WHR) to Outpeform:
Conclusion: We are upgrading shares of WHR from Neutral to Outperform as we believe a stabilization in demand trends next year, combined with the ongoing improvements in the company's cost structure, should help EBIT margin revert closer to historical levels. Management has been proactive in reducing fixed costs as domestic appliance shipments have now shrunk 22% from peak levels set in 2005. WHR also stands to benefit from a weaker dollar, which we believe will add $246MM to the top line in FY10. At only 9x our new Street high FY10 EPS estimate and 7x our FY10 EV/EBITDA estimate, we see significant value in shares of WHR, as growth and ROIC should dramatically improve when the economy recovers.
Improvement in Demand Could Benefit FY10 Operating Margins By 150bps. We estimate that declines in unit shipments have lowered operating margins by 300bps during 1H:09 due to fixed cost deleveraging and lower capacity utilization. We project global unit shipments to decline only 1% in FY10, which should by itself drive 150bps of margin recovery.
We Believe Operating Margin of 6.7% Is Achievable By FY13, Equating To Over $10 in EPS. Our FY09 and FY10 operating margin estimates of 3.7% and 5% are substantially below what we believe to be normalized margin of 7.9% set in 2001. Demand stabilization, productivity improvements, efficiencies related to the 2006 Maytag acquisition, and high cost plant closures should support a gradual reversion to historical margins.
The Street Is Massively Underestimating FY10 Profitability. Our FY09 EPS estimate of $3.97 stands at the high end of management's guided range of $3.50 to $4.00. Our FY10 EPS estimate is raised 92% to a Street high of $7.07, 60% above current consensus of $4.46. Our FY10 estimate revisions are based a stabilization in sales, improved gross margin and lower SG&A spending due to massive restructuring efforts.
Action: Wow, the new FY10 EPS estimate really caught my eye. Current range is $3.50 to $5.25.. and now Cowen says $7.07. Unreal. Of course, these are sell-siders' numbers and real expectations are higher, but you don't see estimate raise of that magnitude too often. Continued talks of cash for appliances should also help.
I expect the shares to hit at least $64 today.