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Citigroup Has Rated Fortune Brands Home & Security as ‘Neutral’

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Price movement

Fortune Brands Home & Security (FBHS) has a market cap of $9.8 billion. It rose by 0.42% to close at $63.83 per share on September 1, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were 0.49%, 0.87%, and 16.0%, respectively, on the same day.

FBHS is now trading 0.77% above its 20-day moving average, 4.2% above its 50-day moving average, and 14.9% above its 200-day moving average.

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Related ETF and peers

The iShares Russell 3000 ETF (IWV) invests 0.04% of its holdings in FBHS. The ETF tracks a cap-weighted index that measures the investable US equities market, covering the entire market-cap spectrum, including micro-caps. The YTD price movement of IWV was 7.8% on September 1.

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

  • Stanley Black & Decker (SWK): $18.4 billion
  • Masco Corporation (MAS): $11.8 billion
  • Spectrum Brands Holdings (SPB): $8.0 billion

FBHS’s rating and performance in 2Q16

Citigroup has initiated the coverage of Fortune Brands Home & Security with a “neutral” rating.

Fortune Brands reported 2Q16 net sales of $1.3 billion, which represents a rise of 8.3% over its net sales of $1.2 billion in 2Q15. Sales from cabinets, plumbing, doors, and security rose by 17.1%, 5.7%, 8.7%, and 5.8%, respectively, between 2Q15 and 2Q16. The company’s cost of products sold as a percentage of net sales fell by 2.1%, and its operating income rose by 46.4% in 2Q16.

Fortune Brands’ net income and EPS (earnings per share) rose to $125.2 million and $0.80, respectively, in 2Q16, as compared to $79.7 million and $0.48, respectively, in 2Q15. It reported adjusted EPS of $0.82 in 2Q16—a rise of 39.0% from 2Q15.

Fortune Brands’ cash and cash equivalents and inventories rose by 16.9% and 4.5%, respectively, between 4Q15 and 2Q16. Its current ratio and debt-to-equity ratio rose to 2.1x and 1.2x, respectively, in 2Q16, as compared to 1.9x and 1.0x, respectively, in 4Q15.

Projections

The company made the following projections for 2016:

  • sales growth of 10%–12%, based on a rise in sales from its Norcraft acquisition and from its expectation of outperforming the market
  • EPS (before charges and gains) of $2.70–$2.78
  • free cash flow of ~$400 million

In the next part, we’ll take a look at Ford Motor (F).

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