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J.P. Morgan Upgrades Fortune Brands Home & Security to ‘Overweight’

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Price movement

Fortune Brands Home & Security (FBHS) has a market cap of $8.3 billion and rose 1.7% to close at $54.63 per share on October 31, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were -1.3%, -6.0%, and -0.74%, respectively, on the same day.

FBHS is now trading 0.83% below its 20-day moving average, 6.2% below its 50-day moving average, and 2.8% below 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-cap companies. The YTD price movement of IWV was 5.7% on October 31.

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

  • Stanley Black & Decker (SWK)—$17.2 billion
  • Masco (MAS)—$10.1 billion
  • Spectrum Brands (SPB)—$8.1 billion

Fortune Brands’ rating

On October 31, 2016, J.P. Morgan upgraded Fortune Brands Home & Security’s rating to “overweight” from “neutral” and set the stock’s price target at $68.0 per share.

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Fortune Brands’ performance in 3Q16

Fortune Brands Home & Security reported 3Q16 net sales of $1.3 billion, which is a rise of 3.2% over its net sales of $1.2 billion in 3Q15. Sales in the Plumbing, Doors, and Security segments rose 7.3%, 4.4%, and 6.3%, respectively, in 3Q16 as compared to 3Q15. The company’s operating margin rose 140 bps (basis points) in 3Q16 compared to the prior year’s period.

FBHS’s net income and EPS (earnings per share) rose to $123.4 million and $0.77, respectively, in 3Q16, as compared to $107.5 million and $0.61, respectively, in 3Q15. It reported adjusted EPS of $0.80 in 3Q16, which is a rise of 25.0% over 3Q15.

Its cash and cash equivalents and inventories rose 16.8% and 1.2%, respectively, in 3Q16 compared to 4Q15. Its current ratio and debt-to-equity ratio rose to 2.0x and 1.2x, respectively, in 3Q16 compared to 1.9x and 1.0x, respectively, in 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 December 14, 2016, to shareholders of record at the close of business on November 25, 2016.

Projections

The company has made the following projections for fiscal 2016:

  • sales growth of 9.0%–10.0%
  • EPS before charges and gains of $2.72–$2.76
  • free cash flow of ~$400 million

Now let’s discuss Johnson Controls (JCI).

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