H.B. Fuller: Shares Dip To Support Ahead Of Earnings, Valuation Improving

Sep. 18, 2022 10:37 PM ETH.B. Fuller Company (FUL)

Summary

  • Many major stock market areas featured bearish weekly candles during options expiration week.
  • One Chemicals-industry company reports Q3 results Wednesday.
  • H.B. Fuller shares have fallen to a buy zone, while its options are inexpensive.

Production of white polypropylene flat yarn for the production of industrial bags. Allison-circular loom woven bag machine. Production of polypropylene sleeves. Shuttle.

Foto-Video-Studio/iStock via Getty Images

Last week featured important bearish engulfing patterns on several major market indices. Fundamental investors might scoff at such a technical observation, but it’s a sign that the bears remain in control ahead of poor seasonal trends during the final third of September. It is not all doom and gloom, however, as we are almost to one of the most bullish parts of the election cycle – the start of Q4 of a mid-term year. Getting out your long-idea playbooks might be wise. One Chemicals company also endured a tough bearish engulfing weekly candlestick, but I see opportunities ahead of its Q3 earnings report Wednesday.

Bearish Engulfing Candles Commonplace Last Week

Bearish Engulfing Candles Commonplace Last Week

Stockcharts.com

According to CFRA Research, H.B. Fuller Company (NYSE:FUL), together with its subsidiaries, formulates, manufactures, and markets adhesives, sealants, coatings, polymers, tapes, encapsulants, additives, and other specialty chemical products worldwide. The company operates through three segments: Hygiene, Health, and Consumable Adhesives; Engineering Adhesives; and Construction Adhesives.

The Minnesota-based $3.2 billion market cap Chemicals industry company within the Materials sector trades at a near-market GAAP earnings multiple of 18.1 using data from the last four quarters. H.B. Fuller pays a small 1.3% dividend yield, according to The Wall Street Journal.

On valuation, the firm’s earnings have been volatile over recent quarters, but its annual EPS picture shows a clearer uptrend. Using this year’s forecast EPS, FUL trades at just 14.2 times earnings. Looking to next year, $4.71 of per-share profits yields a somewhat cheap 12.7 operating P/E ratio.

FUL: Earnings & Valuation Forecasts

FUL: Earnings & Valuation Forecasts

CFRA

Wall Street Horizon’s corporate event data show a confirmed earnings date of Wednesday, Sept. 21 AMC with a conference call to follow on Thursday morning. Investors can listen live here.

Corporate Event Calendar

Corporate Event Calendar

Wall Street Horizon

The Options Angle

Option Research & Technology Services (ORATS) data show a consensus EPS estimate of $1.05 for HB Fuller’s Q3 report. The options market has priced in a low 5.5% post-earnings share price swing using the soonest-expiring at-the-money straddle options, but that is actually a smidgen higher than the average over the previous seven quarters. Moreover, FUL shares do not have a history of producing big earnings-related stock price moves.

On the upside, the company’s positive earnings beat-rate history is an arrow in the bulls' quiver for this week’s profit report.

A Strong Per-Share Earnings Number Expected

A Strong Per-Share Earnings Number Expected

ORATS

The Technical Take

With decent earnings growth, a respectable forward valuation, and a positive earnings beat rate trend, does the chart support a bullish thesis here?

I see key support in the $57 to $59 range. With a big bearish engulfing weekly candle during options expiration week, FUL is right near that important zone in a descending triangle pattern. That’s not a bad thing, though. Shares are simply consolidating after a massive uptrend off the March 2020 lows. The presumption is that this corrective pattern should resolve with price breaking out and making new highs.

If the upper $50s does not hold, however, then a bearish measured move price objective of toward the mid to high $30s would trigger. You can also interpret the current pattern as a potential head and shoulder top.

On the upside, there’s some resistance in the $70 to $71 range.

FUL: Descending Triangle, Shares at Support

FUL: Descending Triangle, Shares at Support

Stockcharts.com

The Bottom Line

I think a long position on FUL stock ahead of and through earnings makes sense. Being long call options is a good play given low implied volatility, but an investor can also buy shares here with a stop in the mid-$50s based on the charts. Fundamental investors should like the valuation, too.

This article was written by

CFA & CMT Charterholder | Freelance Financial Writer at SoFi & Ally | Investments | Markets | Personal Finance | RetirementI create written content used in various formats including blogs, emails, white papers, and social media for financial advisors and investment firms in a cost-efficient way. My passion is putting a narrative to financial data. Working with teams that include senior editors, investment strategists, marketing managers, data analysts, and executives, I contribute ideas to help make content relevant, accessible, and measurable. Having expertise in thematic investing, market events, client education, and compelling investment outlooks, I relate to everyday investors in a pithy way. I enjoy analyzing stock market sectors, ETFs, economic data, and broad market conditions, then producing snackable content for various audiences. Macro drivers of asset classes such as stocks, bonds, commodities, currencies, and crypto excite me. I truly enjoy communicating finance with an educational and creative style. I also believe in producing evidence-based narratives using empirical data to drive home points. Charts are one of the many tools I leverage to tell a story in a simple but engaging way. I focus on SEO and specific style guides when appropriate. My CFA and CMT backgrounds demonstrate prowess in investment management and my professional experience includes extensive public speaking and communication. Moreover, my extensive university teaching and professional trading experience provide useful skills. Past roles also include heavy use of Excel modeling and chart creation as well as PowerPoint.I am a contributor to The Dividend Freedom Tribe. I am a contributor to Topdown Charts.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.

Recommended For You

Comments

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.