Event: Shares of Whirlpool (NYSE: WHR) are down nearly 6% thanks a Wall Street firm taking down profit and revenue estimates. The stock was down more than 8% at the open, but has rallied some thanks to an improvement in overall market conditions. Cleveland Research reports that sales have slowed over the last 30 days. The kicker to note is a comment about how this news impacts Q3 earnings: It doesn’t.
Analysis: Wall Street can still move a market. Analysis by Cleveland Research is all it took to send Whirlpool substantially lower. These are the sort of moves that are indicative of an inefficient market. The real kicker is the claim that reduced selling will not impact third-quarter earnings. Even if it does negatively impact earnings, I wouldn’t be all that concerned.
The consensus estimate and current valuation have enough spread to make this stock a screaming buy. If you look at the P/E Gap – the difference between a stock’s P/E ratio and the expected profit growth rate – there is a substantial disconnect here. Putting aside the Cleveland Research report, analysts currently expect the company to grow profits by 20% in 2014. At current prices shares trade for just 11 times 2014 estimated earnings. That is a steal no matter how you cut it. I would ignore Cleveland and focus on what the company tells you.
Action: Buy shares of WHR on current weakness.