Argus Maintains Hold On Fortune Brands As Shares Are Fairly Valued

In a research report issued today, Argus analyst Chris Graja maintained coverage with a Hold rating on shares of Fortune Brands (FBHS), as he believes that the shares are fairly valued based on his expectations for growth in operating income and EPS and based on the multiples where similar covered companies, such as Masco and Stanley Black & Decker are trading.

Graja noted, “We believe that the shares are fairly valued based on analysis with a simple discounted earnings model. If we use our FY14 and FY15 estimates as a starting point and assume that EPS grows at 10 % annually in FY16, FY17 and FY18, EPS would be approximately $3.20 at the end of FY18. If the shares traded at 17times trailing earnings at the end of that period, the shares would be worth approximately $55. If we discount that to the present at 9% the shares would be worth approximately $36. The shares are trading at an Enterprise value of 18x trailing EBIT. That strikes us as being a little high on an absolute basis and slightly elevated compared with Masco at 14.6-times. At 13-times our EBIT estimate for the next four quarters, the shares would be worth $36. At 12-times, the shares would be worth 33. We’d probably be more excited about the shares at slightly lower multiples, but these multiples to forward EBIT seem reasonable if the company can meet consensus earnings estimates over the next four quarters”.

According to, which measures analysts and bloggers success rate based on how their calls perform, analyst Chris Graja currently has an average return of -3.5% and a 50% success rate. Graja is ranked #2851 out of 3160 analysts.

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