Whirlpool (WHR) shares crashed on May 7 as the company posted a disastrous Q1 earnings release, featuring CEO Mark Bitzer’s stark warning that the Iran war has triggered a “recession-level industry decline.”
The selloff saw WHR’s relative strength index (14-day) slide briefly into the late 20s on Thursday morning, indicating oversold conditions that often trigger a relief rally.
Versus its year-to-date high, Whirlpool stock is now down about 50%, but persistent macro headwinds and deteriorating margins suggest this falling knife remains too risky for value investors.
Whirlpool Stock Looks More Like a Value Trap
WHR shares are unattractive to buy on the post-earnings dip primarily because CEO Marc Bitzer was strikingly grim on the earnings call — comparing the current collapse in demand to the Global Financial Crisis of 2008.
According to him, duress replacements — buying a fridge because the old one broke — remain stable, but discretionary spending has effectively evaporated.
The onset of the Iran war in late February amplified cost-of-living concerns, sending U.S. consumer sentiment to a record low.
Bitzer also warned that March was a massive outlier in terms of demand decline, and management does not anticipate a full market rebound in the near-term, signaling a multi-quarter struggle ahead for the appliance giant.
WHR Shares Have Been Stripped of the Safety Net
The aforementioned macroeconomic fears are already starting to reflect in WHR’s fundamentals.
On Thursday, the NYSE-listed firm recorded $0.56 per share of loss for its Q1, alarmingly below the estimate of $0.62 a share of profit that analysts had called for.
Plus, management slashed its full-year guidance in half and took the drastic step of suspending the dividend payments for the first time in 55 years, further stripping Whirlpool shares of a key support pillar.
With a negative free cash flow of nearly $900 million and EBIT margins collapsing to a razor-thin 0.3% in North America, disciplined investors hardly have any reason at all to load up on Whirlpool today.
What’s the Consensus Rating on Whirlpool?
Heading into the Q1 print, Wall Street had a consensus “Hold” rating on WHR stock, with a mean price target of nearly $63, indicating significant upside.
However, it’s fair to assume that downward revisions will follow after the company’s disappointing earnings and the CEO’s grim remarks.
