At first glance, there's a lot not to like about Electrolux (OTCPK:ELUXY). While this international appliance maker is competitive with companies like Whirlpool (NYSE:WHR), BSH Hausgeräte and GE's (NYSE:GE) former appliance business in terms of market share, the company's margins have been underwhelming and the company has also seen lackluster (or worse) performance in businesses like small appliances and markets like Brazil in recent years. Worse still, a transaction with GE that was supposed to significantly increase its North American business, improve its product breadth and drive margin synergies was turfed on anti-trust concerns (with Haier (OTCPK:HRELY) benefiting).
And yet, I think there are solid reasons to consider these shares. I don't think Electrolux can get to Whirlpool's double-digit North American margins, but it doesn't have to; just a couple of points of margin improvement overall would make a difference. What's more, the company has a clean balance sheet and a lot of M&A options in both its core appliance and professional equipment businesses. If I'm right about Electrolux being able to generate a 6% to 8% EBITDA and FCF growth on the back of okay top-line demand, a slow recovery in Brazil and better operating margins, 10% to 15% undervaluation seems reasonable, with a decent dividend as a bonus.
Electrolux's ADRs aren't always as liquid as an investor might want, so readers may want to consider the shares listed in Sweden as a more liquid option.
Electrolux Can Do Better From Here