It's no secret that stocks with exposure to the housing market have had a rough year in 2022. Rising interest rates caused mortgage rates to spike, and concerns about the housing demand cooling down torpedoed the shares of home builders, home improvement companies, and anyone thought of as having some exposure to the sector.

For example, shares of the SPDR S&P Homebuilders ETF (XHB -0.24%) are down 34% from their 52-week high, while industry stalwart Home Depot (HD 0.67%) is down 32% year to date.

Fortune Brands Home & Security (FBIN -0.77%) is an under-the-radar stock with a great track record in the home improvement space. Its shares are down an even more drastic 47% year to date, but the selling looks overdone, and the company continues to look like a long-term winner. Let's take a look at why. 

Locksmith installing a new lock on an entry door.

Image source: Getty Images.

What is Fortune Brands Home & Security?

While you may not be familiar with Fortune Brands, you've likely heard of some of the brands within its portfolio, like Master Lock, SentrySafe, and Moen, which makes high-end shower and bath fixtures. The company operates more than two dozen brands in three different segments: water innovations, outdoors  and security, and cabinets. (The company is planning to spin off the cabinet business; more on that later.)

Fortune Brands Home & Security went public as a spin-off from Fortune Brands in 2011 and is now a part of both the Fortune 500 and the S&P 500. The company has put together an impressive showing in that time. 

An excellent track record

Fortune Brands Home & Security has been a strong performer over the past decade. Between 2012 and 2021, the company increased earnings per share from $0.83 to $5.73, good for an outstanding 24% compound annual growth rate (CAGR).

Fortune Brands Home & Security has also returned over $4 billion to shareholders via both share repurchases and dividends in that time. The stock has rewarded its shareholders with a gain of over 360% since going public, and that figure was even higher before this year's sell-off.

High-end returns at a bargain price

After this year's sell-off, shares of Fortune Brands look attractive, trading at just 10 times earnings and an even cheaper 8 times forward earnings. This is well below the average multiple for the S&P 500 despite the company's strong history of performance.

While the housing market is something for investors to monitor, this sell-off seems overdone as Fortune Brands is down more than other peers in the space. While the housing market is uncertain now, the United States still has a shortage of about 3 million homes, meaning that at some point in the future, housing demand will inevitably heat up again.

Furthermore, many of Fortune's products, like high-end shower and bath fixtures, locks, and entry doors, benefit from remodeling and aren't entirely dependent on new construction or people buying new homes. 

Catalyst in the cabinets? 

In addition to its attractive valuation, strong historic performance, and returns to shareholders, Fortune Brands also looks appealing because of an interesting potential catalyst on the horizon.

The company plans to spin off its cabinets business as a free-standing, publicly traded company in a tax-free transaction for Fortune Brands shareholders.

Logic for the move is simple: The water innovations and outdoor-and-security segments, called "New Fortune Brands" for these purposes, are growing faster and boast higher margins than the cabinet business, and a spin-off will showcase this. New Fortune Brands' revenue has increased at a 16.1% CAGR over the past three years, compared to a 5.7% CAGR for the cabinet business.

New Fortune Brands has higher operating and income margins of 19.5% versus 10.1% for the cabinet business, meaning that it is more profitable. Furthermore, New Fortune Brands is growing these margins at a faster rate, with an impressive 19.4% CAGR over the last three years versus a lower but still solid 7.3% CAGR for cabinets. 

Since New Fortune Brands would be a separate company, the market could theoretically give this business a higher price-to-earnings (P/E) multiple thanks to its higher growth and superior margins. There is no guarantee that the market will behave this way, and it could take some time to shake out, but over the long run, it should be a good strategy to create value for shareholders.

Building a long-term fortune

At the end of the day, Fortune Brands looks like a good stock that has been tossed out with the bathwater during 2022's tumultuous market action. The company has a solid decade-plus history of strong performance and creating shareholder value. It returns capital to shareholders via both share repurchases and dividends, plus it trades at an inexpensive valuation.

Furthermore, the possibility of the planned spin-off creating an independent new company with higher margins and faster growth could unlock even more value for shareholders, making Fortune Brands Home & Security a strong buy for long-term investors.