Fortune Brands Home & Security Inc (NYSE:FBHS) is engaged in home and security products with companies focused on the design, manufacture and sale of products in Kitchen & Bath Cabinetry, Plumbing & Accessories, advanced material windows & entry door Systems, and security and storage products. On January 29, 2014, the company reported fourth quarter earnings of $0.38 per share, which were in-line with analysts' estimates. In the past year the company's stock is up 31.06% excluding dividends (up 31.78% including dividends), and is beating the S&P 500 (NYSEARCA:SPY), which has gained 21.91% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's a good purchase for a portfolio.
The company currently trades at a trailing 12-month P/E ratio of 33.38, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 18.05 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.41), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 23.71%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 23.71%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 23.7%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 1.07% with a payout ratio of 36% of trailing 12-month earnings while sporting return on assets, equity and investment values of 5.7%, 9% and 8.1%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 1.07% yield of this company is good enough for me to take shelter in for the time being.
Looking first at the relative strength index chart [RSI] at the top, I see the stock is in middle ground territory with a value of 47.73 but with downward trajectory. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is about to cross below the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($44.73), I'm looking at $48.14 to act as resistance and $41.75 to act as support for a risk/reward ratio which plays out to be -6.66% to 7.62%.
This company is a leader in home products and is an investment tethered to the housing recovery. Fundamentally I believe the company to be fairly valued on 2015 earnings as well as on growth, but the near and long-term earnings growth rates of this company are phenomenal. Financially, the company has a miniscule dividend yield but has lots of room to grow it over the years with its current 36% payout ratio. On a technical basis the company is exhibiting bearish trends. I hold this company in my growth portfolio but will not be adding anything to my position at this time.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I am long FBHS, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am long FBHS in my growth portfolio.