Fortune Brands (FBHS) Raises Overall EPS View, Risks Linger

We issued an updated research report on the premium home furnishings & fixtures company, Fortune Brands Home & Security, Inc. (NYSE:FBHS) , on May 31.

Over the last three months, shares of this Zacks Rank #3 (Hold) stock yielded a return of 7.12%, outperforming 1.15% growth recorded by the Zacks categorized Security and Safety Services industry.

Existing Scenario

Fortune Brands anticipates the positive momentum to continue throughout 2017, driven by impressive first-quarter results and favorable tax rate expectations. On the back of these positive aspects, the company raised its earnings guidance to $3.00–$3.12 per share from the earlier projection of $2.95–$3.05. It is also making bolt-on acquisitions for fortifying its core segments and creating new platforms, in order to boost long-term growth opportunities. Additionally, Fortune Brands believes in investing to develop new products and improve its services.

Furthermore, the company is committed toward rewarding its shareholders handsomely through dividend payments and share buybacks.

However, the Zacks Consensus Estimate for the stock has remained unchanged for 2017 and 2018 in the last 30 days, reflecting neutral market sentiments.

Geographical diversification has exposed Fortune Brands to risks arising from adverse movement in foreign currencies and geo-political issues, among others. In addition, the company's businesses are highly dependent on the housing market, especially home improvement, repair and remodel, and new home construction activity levels in North America.

Lower level of housing activities and dismal financial conditions in countries where the company operates, will adversely hurt its sales, earnings and cash flow. Also, it is highly leveraged, with roughly $1.5 billion of long-term debt outstanding at the end of first-quarter 2017. A rise in the debt level, if unchecked, will increase the company's financial obligations and hence hurt profitability. Moreover, Fortune Brands faces a competitive environment because of the wide diversity of its products and the vastness of the markets it serves.

Stocks to Consider

Some better-ranked stocks in the industry are listed below:

Caterpillar Inc. (NYSE:CAT) delivered a positive average earnings surprise of 40.25% for the trailing four quarters and currently boasts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Industrial Technologies, Inc. (NYSE:AIT) , which sports a Zacks Rank #1 at present, pulled off an average positive earnings surprise of 9.78% over the last four quarters.

Acco Brands Corporation (NYSE:ACCO) currently carries a Zacks Rank #2 (Buy) and has an average positive earnings surprise of 79.74% for the past four quarters.

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