Whirlpool Jumps on Strong Guidance; Too Optimistic?

[Stocks-to-Watch]

Whirlpool (WHR) posted relatively weak worldwide sales, but strength in the U.S. and optimism about 2012 has sent shares 13% higher this morning.

The household appliance-maker posted 32 cents of EPS after excluding restructuring and other items. Analysts had been expecting $1.96. North American revenue rose 1%, but sank in all the company’s other regions. The company said it now expects to earn $6.50 to $7 per share in 2012, well above expectations for $5.85.

Vertical Research Partners analyst Jeff Sprague, however, cast some doubt on Whirlpool’s optimism.

“For 2012, the company is projecting $100-150mm of FCF, which is very optimistic given that it plans/or has to make the following payments: $275mm Brazil legal settlement, $110mm for anti-trust resolutions, $250mm of pension contributions and $279mm of restructuring cash outlays.* If we add all these items back to the FCF guide it implies underlying FCF of over $1 billion or about 5.5% of sales.* Over the last 10 and 20 years, FCF/Sales averaged 2.1% and 2.2%, respectively…The bottom line, the cash target looks extremely optimistic and even if its achieved it equates to $2/share at the high end and puts the stock at 27X FCF/Share. We reiterate our Sell Rating.”

Original Article Source by Barrons.com