Upward estimate revisions on the back of strong third-quarter
2012 results - including an earnings surprise of 16.0% as well as
high earnings estimates for fiscal 2012 - have helped
Fortune Brands Home & Security, Inc
) achieve a Zacks #1 Rank (Strong Buy) on December 29.
Since the release of its third-quarter results on October 23,
shares of this home and security products maker have increased
about 7.0%. Moreover, considering its robust growth (year-to-date
return of approximately 71.5%) and the history of beating
quarterly earnings estimates (including an average beat of 63.1%
over the trailing four quarters), it can stated that this stock
offers an attractive investment opportunity.
The Rank Driver
An impressive record of beating the quarterly earnings
expectations, a positive fiscal 2012 outlook and recovery in new
construction as well as remodeling activities, are the major rank
drivers for this stock.
On October 23, 2012, Fortune Brands Home & Security posted
third quarter 2012 adjusted earnings of 29 cents per share, ahead
the Zacks Consensus Estimate of 25 cents. The result also
exceeded the year-ago quarters' earnings of 20 cents. The upbeat
results benefited from top-line growth and cost-saving
Total revenue of $909.0 million was up 7.2% from the year-ago
quarter, primarily driven by higher sales volume from an
improving U.S. home products market, price increases and new
product launches. The results beat the Zacks Consensus Estimate
of $900.0 million.
All segments witnessed sales growth, with the Kitchen &
Bath Cabinetry, Plumbing, Windows & Door and Security &
Storage segments delivering 6.1%, 11.7%, 6.9% and 2.0% sales
increases, respectively. The repair and remodeling business
gained the most, riding on a market recovery, while consumer
spending on expensive products like cabinets was still
Adjusted operating income expanded a whopping 34.5% to $72.9
million, driven by solid revenue growth and cost savings.
Following the upbeat third quarter and the improvement in the
home products market, management raised its earnings per share
outlook for 2012. The company now expects earnings per share to
be between 86 cents and 88 cents, up from the prior forecast of
77 cents to 87 cents.
Earnings Estimate Revisions
Earnings estimate revisions of the company is exhibiting a
positive trend for fiscal 2012 and 2013. The Zacks Consensus
Estimate for fiscal 2012 increased 6.0% to 88 cents per share in
the last 90 days, representing a year-over-year surge of 51.2%.
Further, the Zacks Consensus Estimate for fiscal 2013 grew 1.8%
to $1.15 per share for the same time frame, reflecting a
year-over-year increase of 30.7%.
Valuation Looks Reasonable
Fortune Brands Home & Security currently trades at a
forward price-to-earnings (P/E) multiple of 34.12x, reflecting a
99.4% premium to the peer group average of 17.11x. However, the
stock looks attractive on a price-to-book (P/B) value basis. The
P/B multiple for the stock is 2.06, reflecting a discount of 7.2%
to the peer group average of 2.22.
About the Company
Based in Deerfield, Illinois, Fortune Brands Home &
Security is a leading producer of home and security products. The
company was spun off from Fortune Brands, a consumer brands
company, in 2011. Fortune Brands Home & Security makes and
sells kitchen and bath cabinetry, plumbing and accessories,
advanced material windows products and entry door systems,
security and storage products. Leading brands include Moen
faucets, MasterBrand kitchen and bath cabinet, Simonton Windows
and many more. The company has a market cap of $4.70 billion. One
of the company's peers
) holds a Zacks #3 Rank, implying a short-term Hold rating.
FORTUNE BRD H&S (FBHS): Free Stock Analysis
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