Fortune Brands Home & Security Just Keeps Building

Fortune Brands Home & Security (NYSE: FBHS  ) , along with former parent Beam, is one of the great spinoff success stories in recent years. As one company, Fortune Brands lacked the focus to handle its wide variety of tremendous brand-name products. Add to that a couple of poorly timed, overpaid acquisitions, and the company was ripe for activist intervention. Since then, the spirits business has performed beautifully and was recently bought out by Japan's Suntory. Fortune Brands Home & Security can do little wrong, either, as the company last week again reported great earnings results. Here's what investors need to know.

Locked in
Fortune Brands might not be a household name, but its collection of home and consumer brands are likely in your cabinets (or actually are your cabinets). The company owns names from Master Lock to Moen to Simonton Windows.

In 2011, as it spun off from Beam, the writing was on the wall for brighter days ahead as Fortune Brands had a strong wind at its back in the form of a major housing recovery. The stock has since risen upward of 250%.

As a home goods-focused brand holding company, Fortune Brands allowed the market to see the previously hidden value of its products. All of its names are among the most recognized in their respective product categories. With new housing starts still near historical lows, it only makes sense that demand for windows, doors, cabinets, locks, and more should continue their precipitous rise.

Recent earnings show it, too, as Fortune Brands posted fourth-quarter net sales that were 16.2% higher than the year-ago quarter, at $1.1 billion. Analysts had expected slightly less. The bottom line was much stronger, with revenue of $0.38 per diluted share -- a gain of 65.2% more than 2012's fourth quarter adjusted EPS.

More to come?
While its biggest gains are likely in the rearview mirror, Fortune Brands Home & Security isn't out of room at these levels. Management has guided for 11%-14% growth for the coming year, and the housing data shows continued growth through at least 2016. The company also bumped up its full-year EPS guidance, now with a top end of $2.01.

The company is tacking on new brands to the portfolio, most recently WoodCrafters, a well-known vanity sink business with annual sales of more than $200 million. Fortune Brands paid $300 million (7.5 times EBITDA) for the company back in June.

Valuation is certainly on the higher end at 18 times forward earnings, but investors are paying a premium for a top-tier business in what is now a very strong industry. In the long term, earnings will likely level off from the current quick pace, but these brands will not just fall off once the housing market levels. Moen is possibly the most recognizable global brand in faucets. Master Lock has been ingrained in consumers' minds since they used one on their school lockers. Management has established a portfolio of brands that is built for the long run. Even at today's relatively rich levels, Fortune Brands has the foundation for a great long-term holding.

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