Back on April 28th shares of Whirlpool (WHR) declined 7% after the home appliance maker cut its full year earnings guidance to $9 to $10 a share vs $10.75 consensus, representing an 11% haircut. WHR gets about 45% of its sales from overseas, with about 25% from Latin America, and the company specifically cited weak demand in Brazil and the adverse affects of currency headwinds. Surprisingly, the guide down came as a bit of a surprise to investors, but the stock has since found a bit of footing above the April lows, but has yet to materially fill in the gap.
WHR has not set its reporting date yet, but Bloomberg estimates the last week of July. The one year chart is at a fairly precarious spot, with the stock right in between its 50 day (purple below) and 200 day (yellow below) moving averages, approaching what some technicians call the death cross signalling waning momentum:
Options on WHR are not particularly liquid for a stock with a $14 billion market cap with only 34,000 contracts of total open interest (15,000 calls and 19,000 puts). The single largest strike for open interest is 1275 of the Jan16 150 puts, followed by 900 of the Sept 185 calls, Jan16 145 puts, Jan16 200 calls and Jan 210 calls.
But given the one year range of 60%, with the stock now up 36% from the 52 week lows and down 15% from the 52 week highs, short dated options prices appear cheap, with 30 day at the money IV at 21%, just off of the 52 week lows:
My View: There is a strong possibility that WHR lowered full year guidance low enough already. And that, coupled with the pull back in the dollar against most currencies since late April would suggest some relief on that front. The recent strength in housing data here in the U.S. should also bode well for WHR. If there is one unknown it would be the weakness in emerging markets. Your guess is as good as mine on that front. As far as valuation, the stock trades below a market multiple at 14x expected 2015 earnings growth of 9%, but only 12x expected 2016 earnings growth of 23%. If 2015 is too conservative, and 2016 estimates are accurate than the stock is very cheap to the market and other retailers that supply the housing market.
On purely a technical level, the stock looks and feels heavy though, and for the purposes of this post I am just going to outline how I would play for a break down of technical support at $180. I would consider the following defined risk bearish trade into earnings:
Hypothetical Trade: WHR ($184.50) Buy Aug 180/160 Put Spread for 4.20
-Buy 1 Aug 180 put for 5.20
-Sell 1 Aug 160 put at 1.00
Break-Even on Aug Expiration:
Profits: gains of up to 15.80 below 175.80 with max gain at 160
Losses: losses of up to 4.20 above 175.80 with total loss above 180
Rationale: Vol is low and the stock is at a spot in which the slightest bad news could send it significantly lower. This trade risks slighty more than 2% of the underlying to position for a move back to 160.
This stock is on our radar. Not doing the trade here, but wanted to lay some thoughts out.