Somebody must have forgot to tell Whirlpool (NYSE:WHR) about the slowdown in consumer spending, because the company has beaten earnings expectations for the last five quarters in a row.

That's right, five quarters in a row despite all the doom and gloom surrounding the U.S. credit crunch. Whirlpool has simply continued to rake in the profits in 2007. With the last earnings announcement for the fourth quarter of 2007 coming in 10.7% higher than estimates, it seems Whirlpool has figured out how to guard against the bear and continue to shoot for the bull.

Maytag Acquisition Drives Earnings
It's hard to argue with any of Whirlpool's numbers. In the fourth quarter of 2007, its operating profit jumped 74% to $332 million when compared to the same quarter in 2006. Full-year earnings in 2007 were $8.10 per share, a 28% increase from the $6.35 per share earned in 2006.

A significant catalyst in the amazing profit and earnings spike in 2007 was the successful acquisition of Maytag, which Whirlpool bought in 2006. This profit growth is especially impressive given the increased oil prices, inflated materials prices and a stagnant U.S. housing market.

International Success
Whirlpool Europe, Latin America and Asia all reported astounding fourth quarter and full year revenues in 2007. Whirlpool Europe saw a 22% increase in operating profit; Latin America saw a 73% increase in operating profit, and Whirlpool Asia's fourth quarters sales spiked 26% from the same quarter last year.

The company anticipated that the housing market was on the downturn and decided to focus efforts overseas during the last couple of years. When Whirlpool realized the American housing market had reached its pinnacle, it bought one of its largest competitors, Maytag, and combined forces to make a significant stab at the foreign markets. In hindsight, the move appears to be one of exceptional timing. (If overseas investing isn't a possibility for your own portfolio, check out Offset Risk Without Investing Abroad.)

Giving Back to Shareholders
In the fourth quarter 2007, Whirlpool repurchased $117 million shares of common stock, increasing its yearly total to $368 million. These shares worked heavily toward completing the $500 million repurchase plan established in 2006, as Whirlpool now only needs to buy another $97 million of common stock to complete the project. The company also produced $521 million in free cash flow in 2007, which it used to reduce total outstanding debt to $2.1 billion from $2.3 billion. The company also announced a quarterly dividend of 43 cents per share, which comes to a yield of almost 2%.

It's clear that Whirlpool is making solid money. With the $500 million share repurchase program almost complete, the reduction in corporate debt and a solid dividend payout, Whirlpool is on the growth fast track and is steadily sweetening shareholder positions. This will continue to attract new investors and ultimately raise the share price. (To learn what repurchase plans can mean to both companies and shareholders, see A Breakdown Of Stock Buybacks.)

The Bottom Line
With earnings on the rise, revenues from foreign operations spiking and the share repurchase program approaching completion, Whirlpool's shares are going nowhere but up. With a trailing P/E ratio of 11, Whirlpool is significantly undervalued compared to its industry average of 15 and the S&P 500's trailing P/E ratio of 20. If this stock is expected to trade at the industry average P/E, a fair valuation is more along the lines of $120 per share. So, on that basis we're looking at a current share discount of $30 - a true diamond in the rough.

Related Articles
  1. Stock Analysis

    Will WYNN Continue to Rally?

    Wynn Resorts has experienced a rally recently. Will it remain a good bet?
  2. Stock Analysis

    Don't Be Fooled by the Market's Recent Rally

    The bulls won for a bit in early October, but will bears have the last laugh?
  3. Stock Analysis

    Will Twitter's Stock Find its Wings Soon?

    Twitter is an enigma to many investors, but its story is pretty straightforward.
  4. Stock Analysis

    8 Solid Utility Stocks for a Bear Market

    If you're seeking modest appreciation, generous dividend payments and resiliency, consider these eight utility stocks.
  5. Stock Analysis

    Why Phillips 66 (PSX) is a Solid Long-Term Bet

    Here's why Phillips 66 will likely remain one of the world’s largest and most profitable companies for a long time to come.
  6. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  7. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  8. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  9. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  10. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!