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Fortune Brands Home & Security (FBHS): Locking it Up

 October 12, 2012 11:03 AM


(By Kevin Donovan) Despite intermittent signals of economic weakness, housing has turned the corner, in our view.  We've been bullish on home-building stocks since last spring and now are ready to warm up to the collateral winners.  Our first pick in the home furnishing and fixtures sector is Fortune Brands Home & Security (FBHS).

The $4.34 billion market-cap Fortune Brands, which produces and markets well-known brands such as Master Lock and Moen faucets, should follow the arc of housing demand, enjoying multiple expansion as the rebound in housing becomes more visible. Low interest rates and pent-up demand are the primary drivers of the home-building revival and show no signs of reversing.

[Related -The 10 Best Stocks to Play the Housing Recovery]

After posting losses last year and into 2012, Fortune Brands has galloped into the black and is expected to earn $1.13 a share next year. That results in a forward price to earnings multiple of 23.81, a substantial premium to the S&P 500, reflecting the superior growth prospects for home-building and related industries.

Given the recent slide in the stock market's major indexes, we're heartened by the resilience of Fortune Brands, which occupies a leading position in the building supply market.

Year to date, the shares are up more than 50 percent and have more than doubled in the last 52 weeks. This may dismay some investors who might conclude the train has already left the station, but we believe the fundamentals are strong enough to keep housing and housing-related stocks outperforming the market.

[Related -Options Look For Further Gains In Fortune Brands Home & Security]

The biggest worry is the "fiscal cliff" the U.S. faces in 2013 if tax hikes and government spending cuts kick in simultaneously. Recession would likely return, with employment and spending plans taking a hit. Our sanguine outlook hinges on a resolution of that perfect storm. Meanwhile, monetary policy is wedded to low interest rates for years.

In what is expected to be a down earnings season, Fortune Brands is expected to show quarter-over-quarter EPS growth of 2.2 percent and year-over-year growth of 34 percent in 2013, according to analysts' estimates.

Looking at the price chart, we see a new support level forming.  If you're technically minded, that could mean a breakout if the indexes begin a new upward trend.

Source: Finviz.com Fortune Brands Home & Security, Inc. provides home and security products for use in residential home repair, remodeling, new construction, and security and storage applications. Brands include Aristokraft, Omega, Thomasville, Martha Stewart Living, Moen, Therma-Tru and Master Lock.  The company was founded in 1988 and is based in Deerfield, Ill.

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