Fortune Brands trades at $54.13 and has moved in lockstep with the market. Its shares have returned 6.3% over the last six months while the S&P 500 has gained 9.3%.
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Why Do We Think Fortune Brands Will Underperform?
We’re cautious about Fortune Brands. Here are three reasons why FBIN doesn’t excite us, plus one stock we’d rather own.
1. Core Business Falling Behind as Demand Declines
In addition to reported revenue, organic revenue is a useful data point for analyzing Home Construction Materials companies. This metric gives visibility into Fortune Brands’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Fortune Brands’s organic revenue averaged 1.2% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Fortune Brands might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Fortune Brands’s revenue to drop by 1.2%. While this projection is better than its two-year trend, it’s hard to get excited about a company that is struggling with demand.
3. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Fortune Brands, its EPS and revenue declined by 6% and 7.2% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Fortune Brands’s low margin of safety could leave its stock price susceptible to large downswings.
Final Judgment
Fortune Brands falls short of our quality standards. That said, the stock currently trades at 16.7× forward P/E (or $54.13 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. We’d suggest looking at a top digital advertising platform riding the creator economy.
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