Fortune Brands Home & Security, Inc.

Since spinning off from Fortune Brands in 2011, Fortune Brands Home & Security, Inc. (FBHS - Snapshot Report) has experienced a consistent rise in its stock price, and has delivered an average earnings surprise of 52% over the three quarters.

This home and security products maker became a Zacks #1 Rank (Strong Buy) stock on May 11, 2012 on the heels of a strong first quarter earnings performance and subsequent estimate revisions to the upside. With the home improvement and new home construction markets showing signs of improvement in 2012, the company sees bright growth prospects ahead.

Solid First Quarter

On April 26, 2012, Fortune Brands Home & Security posted first quarter 2012 adjusted earnings of 8 cents per share, which blew past the Zacks Consensus Estimate by more than 166%. The result also bettered last year?s breakeven performance. The upbeat results benefited from top-line growth and cost-saving actions.

Total revenue of $799 million was up 12.0% from the year-ago quarter, driven by higher sales volume from an improving U.S. home products market, price increases and new product launches. The result beat the Zacks Consensus Estimate of $746 million.

All segments witnessed sales growth, with the Plumbing, Security & Storage and Windows & Door segments delivering robust double-digit sales increases. The repair and remodeling business gained the most, riding on a market recovery, while consumer spending on expensive products like cabinets was still constrained.

Operating income expanded a whopping 533.3% to $20.9 million, driven by solid revenue growth and cost savings.

Guidance Raised

Following the upbeat first quarter and the improvement in the home products market, management raised its outlook for 2012. The company now expects revenues to grow at a high single-digit rate, versus prior expectations of mid single-digit growth. The overall U.S. home products market is expected to improve in the mid single digits.

Earnings per share are expected between 77 cents and 87 cents, up from the prior forecast of 66 cents to 74 cents. The Zacks Consensus Estimate for 2012 is currently at 84 cents, near the higher end of the company?s guidance range.

Management seems confident that its strong innovation, leading brand portfolio, operating leverage, strategic spending and cost-saving efforts will help the company to play to its strengths.

The Zacks Consensus Estimate has gone up by 15% to 84 cents for 2012 and by 13% to $1.11 for 2013 over the last 90 days.

Valuation Looks Reasonable

Fortune Brands Home & Security currently trades at a forward price-to-earnings (P/E) multiple of 25.3x, reflecting a 28.2% premium to the peer group average of 19.74x. However, the stock looks attractive on a price-to-book (P/B) value basis. The P/B multiple for the stock is 1.54, reflecting a discount of 12% to the peer group average of 1.75.

Chart Shows Consistent Increase since Spin-Off

Though the stock price has witnessed some volatility from late-May 2012, it has risen continuously ever since the spin-off and has almost doubled over the period. Volume is fairly strong, averaging roughly 1788K daily. Fortune Brands Home & Security has outperformed the S&P 500 over the past six months.

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 and 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 $3.30 billion.

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Read the full analyst report on FBHS

Source: http://www.zacks.com/commentary/22042/fortune-brands-home-security-inc

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