Please ensure Javascript is enabled for purposes of website accessibility

Fortune Brands Home & Security Just Keeps Building

By Michael Lewis – Feb 3, 2014 at 5:05PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's been a great multiyear run for the home goods business, and the fun doesn't look to be ending anytime soon. With a great portfolio of brands, Fortune Brands may still be a winning stock pick.

Fortune Brands Home & Security (FBHS -3.06%), 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.

 
 
 

Michael Lewis has no position in any stocks mentioned. The Motley Fool recommends Beam. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Fortune Brands Home Security Stock Quote
Fortune Brands Home Security
FBHS
$64.89 (-3.06%) $-2.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.