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Topeka Capital Rated Fortune Brands as a ‘Buy’

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May. 29 2016, Updated 6:06 a.m. ET

Price movement

Fortune Brands Home & Security (FBHS) has a market cap of $8.9 billion. It rose by 2.6% to close at $58.80 per share on May 24, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 5.3%, 2.5%, and 6.3%, on of the same day.

This means that FBHS is trading 4.4% above its 20-day moving average, 4.6% above its 50-day moving average, and 12.9% above its 200-day moving average.

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Related ETF and peers

The Vanguard Large-Cap ETF (VV) invests 0.02% of its holdings in FBHS. The ETF tracks a market-cap-weighted index that covers 85% of the market capitalization of the US equity market. The YTD price movement of VV was 2.2% on May 24, 2016.

The market caps of FBHS’s competitors are as follows:

  • Stanley Black & Decker (SWK) — $17.1 billion
  • Masco Corporation (MAS) — $10.6 billion
  • Spectrum Brands Holdings (SPB) — $7.0 billion

Topeka Capital rated Fortune Brands

Topeka Capital has initiated the coverage of Fortune Brands Home & Security with a “buy” rating. It also set the stock’s price target at $64.00 per share.

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Performance of Fortune Brands in fiscal 1Q16

Fortune Brands reported fiscal 1Q16 net sales of $1.1 billion, a rise of 16.4% compared to net sales of $950.8 million in fiscal 1Q15. Sales of cabinets, plumbing, doors, and security rose by 33.8%, 1.5%, 13.3%, and 0.57%, respectively, in fiscal 1Q16 compared to fiscal 1Q15. It reported the amortization of intangible assets of $6.5 million in fiscal 1Q16, a rise of 86% compared to fiscal 1Q15.

Its net income and EPS (earnings per share) rose to $55.7 million and $0.35, respectively, in fiscal 1Q16, compared to $40.0 million and $0.25, respectively, in fiscal 1Q15.

Fortune Brands’ cash and cash equivalents and inventories rose by 6.3% and 7.6%, respectively, in fiscal 1Q16 compared to fiscal 4Q15. Its current ratio and debt-to-equity ratio rose to 2.2x and 1.3x, respectively, in fiscal 1Q16, compared to 1.9x and 0.99x, respectively, in fiscal 4Q15.

Quarterly dividend

Fortune Brands Home & Security has declared a quarterly cash dividend of $0.16 per share on its common stock. The dividend will be paid on June 15, 2016, to shareholders of record at the close of business on May 27, 2016.

Projections

Fortune Brands has made the following projections for fiscal 2016:

  • sales growth in the range of 10%–12% based on an increase in the sales from the Norcraft acquisition and from the expectation of outperforming the market
  • EPS before charges and gains in the range of $2.50–$2.60, including the positive impact of $0.06 from share repurchases and $0.02 from stronger results in fiscal 1Q16

In the final part of this series, we’ll look at Mohawk Industries.

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