Goodyear
550
N.
5th
Ave,
Tucson,
AZ
85709
tgoody@email.arizona.edu
|
(612)
723
-
8934
Harris
Associates
111
S
Wacker
Dr
#4600
Chicago,
IL
60606
Dear
Harris
Associates,
After
evaluating
both
companies,
Whirlpool
Corp
(WHR)
would
be
the
investment
that
I
would
rather
purchase
as
a
Value
investor.
This
company
stands
out
as
having
better
long-term
potential
for
a
number
of
reasons
that
lead
me
to
recommend
it
over
KMX.
The
first
thing
that
stood
out
to
me
in
the
stock
comparison
was
that
WHRs
PE
ratio
of
16
is
considerably
lower
than
Carmaxs
(KMX)
PE
of
20.
This
is
an
important
indicator
because
it
shows
that
Whirlpool
is
the
better
value
for
the
earnings
you
are
buying.
Additionally,
WHR
is
anticipated
to
have
EPS
growth
of
13-15%
in
each
of
the
next
two
years,
where
KMX
is
estimated
to
have
EPS
growth
of
only
7-8%.
New
housing
starts
continue
to
expand
in
the
US,
which
should
help
WHR
expand
sales
revenue
in
the
next
several
years.
Meanwhile,
there
is
considerable
concern
that
auto
sales
in
the
US
may
be
reaching
a
peak
level
in
2016,
which
could
limit
sales
growth
for
KMX
both
in
terms
of
number
of
cars
sold
and
a
lower
average
selling
price
going
forward
if
more
used
cars
are
sold.
Taking
earnings
expectations
into
account,
the
forward
PE
for
WHR
looks
to
be
12,
while
the
forward
PE
for
KMX
is
18,
which
is
just
slightly
above
the
forward
PE
for
the
S&P
500
average.
This
tells
me
that
the
KMX
stock
is
pricey
compared
to
the
much
more
reasonable
WHR.
Another
area
of
concern
for
KMX
is
the
growing
75%
LT
Debt
to
capitalization,
versus
WHR
at
only
35%
and
relatively
stable.
KMXs
reliance
on
increasing
debt
for
expansion
makes
this
a
riskier
investment.
Another
important
aspect
to
look
at
as
a
value
investor
is
the
dividends
paid
to
its
shareholders.
Whirlpool
is
currently
paying
its
shareholders
2.20%
at
current
prices,
while
KMX
pays
no
dividend.
This
leads
me
to
believe
that
the
price
volatility
of
WHR
will
be
lower
than
KMX.
Additionally,
with
the
expected
earnings
per
share
growth
of
13-15%
in
each
of
the
next
two
years,
it
is
conceivable
that
dividends
will
be
able
to
be
increased,
providing
a
good
balance
between
capital
gains
and
dividend
income
in
total
return
for
WHR.
Due
to
stronger
fundamentals
and
an
industry
that
offers
more
growth
potential,
I
recommend
the
purchase
of
WHR
over
KMX
Sincerely,
Ted
Goodyear