Fortune Brands: Near-Term Headwinds But Good Long-Term Growth Prospects

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Summary

  • Softness in the housing industry which is causing inventory destocking at channel partners is presently a concern for FBHS.
  • FBHS is working with its channel partners to rightsize the inventory levels which should benefit the company’s revenue once completed by early 2023.
  • The company’s margin is also expected to benefit from higher price realization, digital transformation, and operational efficiencies which should partially offset the impact of volume deleverage.
  • In the long run, the company should benefit from aging homes, lower housing inventory, demographic trends, and higher levels of home equity.
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Investment Thesis

Fortune Brands Home & Security (FBHS) is witnessing softness in the U.S. new construction and Repair & Remodel (R&R) industries. This has led to inventory destocking at its channel partners. The company is working with its channel partners to rightsize the inventory levels

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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.

Additional disclosure: GS Analytics is a financial research firm. Ashish S. and Sanket B. from our research team co-authored this article.

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