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Fortune Brands (FBHS) Gains From Business Strength, Risks Persist

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Zacks Equity Research
·3 min read
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On Apr 12, we issued an updated research report on Fortune Brands Home & Security, Inc. FBHS.

In the past three months, this Zacks Rank #3 (Hold) stock has returned 14.6% compared with the industry’s growth of 31.6%.

Present Scenario

Fortune Brands is well poised to benefit from strength in the U.S. housing market, backed by expected new construction growth and product introductions. Notably, strength across the company’s plumbing business, supported by growing popularity of brands and incremental investments in brands, will likely be advantageous. In addition, solid demand for doors and decking products, along with strength in its security business, is likely to drive its performance in the quarters ahead.

Also, the company’s LARSON Manufacturing buyout (acquired in December 2020) is anticipated to strengthen its foothold in the doors and decking space. Further, strength in Fortune Brands’s Fiberon business (acquired in September 2018) has been complementing its existing door brand, Therma-Tru. Notably, Fiberon decking brand grew more than 30% in the fourth quarter of 2020.

In addition, it remains dedicated toward increasing shareholders’ wealth through dividend payouts and share buybacks. In 2020, the company repurchased shares worth $187.6 million and paid out dividends worth $133.3 million. Also, in September 2020, its board of directors approved a $500-million share repurchase plan, which is valid till Sep 21, 2022. Further, it hiked its quarterly dividend rate by 8% in December 2020.

However, the company’s high-debt profile poses a major concern. Exiting 2020, its long-term debt was $2,572.2 million. Any further increase in debt levels can raise its financial obligations and hurt profitability.

Moreover, Fortune Brands has been experiencing escalating cost of sales over time. Notably, in 2020, its cost of sales and its selling, general and administrative expenses jumped 6% and 2%, respectively, on a year-over-year basis. Further rise in costs might weigh on its margins in the quarters ahead.

Stocks to Consider

Some better-ranked stocks from the same space are RH RH, Williams-Sonoma, Inc. WSM and Tempur Sealy International, Inc. TPX, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

RH delivered a positive earnings surprise of 30.41%, on average, in the trailing four quarters.

Williams-Sonoma delivered a positive earnings surprise of 222.25%, on average, in the
trailing four quarters.

Tempur Sealy delivered a positive earnings surprise of 28.85%, in the last reported quarter.

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Fortune Brands Home & Security, Inc. (FBHS) : Free Stock Analysis Report

RH (RH) : Free Stock Analysis Report

WilliamsSonoma, Inc. (WSM) : Free Stock Analysis Report

Tempur Sealy International, Inc. (TPX) : Free Stock Analysis Report

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Zacks Investment Research