Intrinsic value of Fortune Brands Home & Security, Inc. - FBHS

Previous Close

$56.13

  Intrinsic Value

$50.62

stock screener

  Rating & Target

hold

-10%

Previous close

$56.13

 
Intrinsic value

$50.62

 
Up/down potential

-10%

 
Rating

hold

We calculate the intrinsic value of FBHS stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 7.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.80
  3.02
  3.22
  3.40
  3.56
  3.70
  3.83
  3.95
  4.05
  4.15
  4.23
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
Revenue, $m
  5,639
  5,809
  5,996
  6,199
  6,420
  6,658
  6,913
  7,185
  7,477
  7,787
  8,116
  8,466
  8,837
  9,229
  9,644
  10,083
  10,546
  11,034
  11,550
  12,093
  12,665
  13,268
  13,903
  14,571
  15,274
  16,013
  16,791
  17,609
  18,469
  19,374
Variable operating expenses, $m
  4,896
  5,034
  5,185
  5,350
  5,529
  5,721
  5,927
  6,148
  6,384
  6,635
  6,569
  6,852
  7,152
  7,470
  7,806
  8,160
  8,535
  8,931
  9,348
  9,787
  10,251
  10,738
  11,252
  11,793
  12,362
  12,960
  13,590
  14,252
  14,948
  15,680
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  4,896
  5,034
  5,185
  5,350
  5,529
  5,721
  5,927
  6,148
  6,384
  6,635
  6,569
  6,852
  7,152
  7,470
  7,806
  8,160
  8,535
  8,931
  9,348
  9,787
  10,251
  10,738
  11,252
  11,793
  12,362
  12,960
  13,590
  14,252
  14,948
  15,680
Operating income, $m
  742
  775
  810
  849
  891
  937
  985
  1,037
  1,093
  1,152
  1,547
  1,614
  1,685
  1,760
  1,839
  1,922
  2,011
  2,104
  2,202
  2,306
  2,415
  2,530
  2,651
  2,778
  2,912
  3,053
  3,201
  3,357
  3,521
  3,694
EBITDA, $m
  1,167
  1,202
  1,241
  1,283
  1,329
  1,378
  1,430
  1,487
  1,547
  1,611
  1,680
  1,752
  1,829
  1,910
  1,996
  2,086
  2,182
  2,283
  2,390
  2,502
  2,621
  2,746
  2,877
  3,015
  3,161
  3,314
  3,475
  3,644
  3,822
  4,009
Interest expense (income), $m
  44
  126
  132
  138
  145
  153
  161
  170
  179
  189
  200
  212
  224
  237
  251
  266
  281
  297
  315
  333
  352
  372
  394
  416
  440
  465
  491
  518
  547
  578
  610
Earnings before tax, $m
  616
  643
  672
  704
  739
  776
  816
  858
  903
  952
  1,336
  1,390
  1,448
  1,509
  1,573
  1,641
  1,713
  1,789
  1,869
  1,954
  2,042
  2,136
  2,235
  2,338
  2,447
  2,562
  2,683
  2,810
  2,943
  3,084
Tax expense, $m
  166
  174
  182
  190
  199
  209
  220
  232
  244
  257
  361
  375
  391
  407
  425
  443
  463
  483
  505
  527
  551
  577
  603
  631
  661
  692
  724
  759
  795
  833
Net income, $m
  450
  469
  491
  514
  539
  566
  595
  626
  659
  695
  975
  1,015
  1,057
  1,101
  1,148
  1,198
  1,251
  1,306
  1,365
  1,426
  1,491
  1,559
  1,631
  1,707
  1,787
  1,870
  1,959
  2,051
  2,149
  2,251

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  6,129
  6,314
  6,517
  6,739
  6,978
  7,236
  7,514
  7,810
  8,127
  8,464
  8,822
  9,202
  9,605
  10,032
  10,483
  10,960
  11,463
  11,994
  12,554
  13,144
  13,767
  14,422
  15,112
  15,838
  16,602
  17,406
  18,251
  19,140
  20,075
  21,058
Adjusted assets (=assets-cash), $m
  6,129
  6,314
  6,517
  6,739
  6,978
  7,236
  7,514
  7,810
  8,127
  8,464
  8,822
  9,202
  9,605
  10,032
  10,483
  10,960
  11,463
  11,994
  12,554
  13,144
  13,767
  14,422
  15,112
  15,838
  16,602
  17,406
  18,251
  19,140
  20,075
  21,058
Revenue / Adjusted assets
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
Average production assets, $m
  2,442
  2,515
  2,596
  2,684
  2,780
  2,883
  2,993
  3,111
  3,237
  3,372
  3,514
  3,666
  3,826
  3,996
  4,176
  4,366
  4,566
  4,778
  5,001
  5,236
  5,484
  5,745
  6,020
  6,309
  6,613
  6,934
  7,271
  7,625
  7,997
  8,389
Working capital, $m
  468
  482
  498
  515
  533
  553
  574
  596
  621
  646
  674
  703
  733
  766
  800
  837
  875
  916
  959
  1,004
  1,051
  1,101
  1,154
  1,209
  1,268
  1,329
  1,394
  1,462
  1,533
  1,608
Total debt, $m
  2,439
  2,557
  2,686
  2,827
  2,979
  3,143
  3,319
  3,507
  3,708
  3,922
  4,150
  4,391
  4,647
  4,918
  5,204
  5,507
  5,827
  6,164
  6,519
  6,894
  7,289
  7,705
  8,143
  8,605
  9,090
  9,600
  10,137
  10,702
  11,295
  11,920
Total liabilities, $m
  3,892
  4,009
  4,138
  4,279
  4,431
  4,595
  4,771
  4,960
  5,161
  5,375
  5,602
  5,843
  6,099
  6,370
  6,657
  6,959
  7,279
  7,616
  7,972
  8,347
  8,742
  9,158
  9,596
  10,057
  10,542
  11,053
  11,590
  12,154
  12,748
  13,372
Total equity, $m
  2,237
  2,305
  2,379
  2,460
  2,547
  2,641
  2,742
  2,851
  2,966
  3,089
  3,220
  3,359
  3,506
  3,662
  3,826
  4,000
  4,184
  4,378
  4,582
  4,798
  5,025
  5,264
  5,516
  5,781
  6,060
  6,353
  6,662
  6,986
  7,328
  7,686
Total liabilities and equity, $m
  6,129
  6,314
  6,517
  6,739
  6,978
  7,236
  7,513
  7,811
  8,127
  8,464
  8,822
  9,202
  9,605
  10,032
  10,483
  10,959
  11,463
  11,994
  12,554
  13,145
  13,767
  14,422
  15,112
  15,838
  16,602
  17,406
  18,252
  19,140
  20,076
  21,058
Debt-to-equity ratio
  1.090
  1.110
  1.130
  1.150
  1.170
  1.190
  1.210
  1.230
  1.250
  1.270
  1.290
  1.310
  1.330
  1.340
  1.360
  1.380
  1.390
  1.410
  1.420
  1.440
  1.450
  1.460
  1.480
  1.490
  1.500
  1.510
  1.520
  1.530
  1.540
  1.550
Adjusted equity ratio
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  450
  469
  491
  514
  539
  566
  595
  626
  659
  695
  975
  1,015
  1,057
  1,101
  1,148
  1,198
  1,251
  1,306
  1,365
  1,426
  1,491
  1,559
  1,631
  1,707
  1,787
  1,870
  1,959
  2,051
  2,149
  2,251
Depreciation, amort., depletion, $m
  424
  427
  430
  434
  437
  441
  445
  450
  454
  459
  132
  138
  144
  150
  157
  164
  172
  180
  188
  197
  206
  216
  226
  237
  249
  261
  273
  287
  301
  315
Funds from operations, $m
  874
  897
  921
  948
  976
  1,007
  1,041
  1,076
  1,114
  1,154
  1,107
  1,153
  1,201
  1,252
  1,305
  1,362
  1,422
  1,486
  1,553
  1,623
  1,697
  1,775
  1,858
  1,944
  2,035
  2,131
  2,232
  2,338
  2,449
  2,567
Change in working capital, $m
  13
  14
  16
  17
  18
  20
  21
  23
  24
  26
  27
  29
  31
  33
  34
  36
  38
  41
  43
  45
  48
  50
  53
  55
  58
  61
  65
  68
  71
  75
Cash from operations, $m
  862
  883
  906
  931
  958
  988
  1,019
  1,053
  1,090
  1,128
  1,080
  1,124
  1,170
  1,219
  1,271
  1,326
  1,384
  1,445
  1,510
  1,578
  1,650
  1,725
  1,805
  1,889
  1,977
  2,070
  2,167
  2,270
  2,378
  2,491
Maintenance CAPEX, $m
  -89
  -92
  -95
  -98
  -101
  -105
  -108
  -113
  -117
  -122
  -127
  -132
  -138
  -144
  -150
  -157
  -164
  -172
  -180
  -188
  -197
  -206
  -216
  -226
  -237
  -249
  -261
  -273
  -287
  -301
New CAPEX, $m
  -64
  -74
  -81
  -88
  -95
  -103
  -110
  -118
  -126
  -134
  -143
  -151
  -161
  -170
  -180
  -190
  -200
  -212
  -223
  -235
  -248
  -261
  -275
  -289
  -304
  -320
  -337
  -354
  -372
  -392
Cash from investing activities, $m
  -153
  -166
  -176
  -186
  -196
  -208
  -218
  -231
  -243
  -256
  -270
  -283
  -299
  -314
  -330
  -347
  -364
  -384
  -403
  -423
  -445
  -467
  -491
  -515
  -541
  -569
  -598
  -627
  -659
  -693
Free cash flow, $m
  708
  717
  730
  745
  762
  780
  801
  823
  847
  872
  810
  840
  872
  905
  941
  979
  1,019
  1,062
  1,107
  1,155
  1,205
  1,258
  1,314
  1,373
  1,435
  1,501
  1,570
  1,642
  1,719
  1,799
Issuance/(repayment) of debt, $m
  105
  118
  129
  141
  152
  164
  176
  188
  201
  214
  228
  241
  256
  271
  286
  303
  320
  337
  356
  375
  395
  416
  438
  461
  485
  510
  537
  565
  594
  624
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  105
  118
  129
  141
  152
  164
  176
  188
  201
  214
  228
  241
  256
  271
  286
  303
  320
  337
  356
  375
  395
  416
  438
  461
  485
  510
  537
  565
  594
  624
Total cash flow (excl. dividends), $m
  813
  835
  859
  886
  914
  944
  977
  1,011
  1,048
  1,086
  1,038
  1,081
  1,127
  1,176
  1,227
  1,282
  1,339
  1,399
  1,463
  1,530
  1,600
  1,674
  1,752
  1,834
  1,920
  2,011
  2,107
  2,207
  2,313
  2,423
Retained Cash Flow (-), $m
  -59
  -68
  -74
  -81
  -87
  -94
  -101
  -108
  -116
  -123
  -131
  -139
  -147
  -156
  -165
  -174
  -184
  -194
  -204
  -215
  -227
  -239
  -252
  -265
  -279
  -293
  -309
  -325
  -341
  -359
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  754
  767
  785
  805
  826
  850
  875
  903
  932
  963
  907
  943
  980
  1,020
  1,063
  1,108
  1,155
  1,205
  1,258
  1,314
  1,373
  1,435
  1,500
  1,569
  1,642
  1,718
  1,798
  1,883
  1,971
  2,065
Discount rate, %
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.12
  16.93
  17.78
  18.67
  19.60
  20.58
  21.61
  22.69
  23.82
  25.01
  26.26
  27.58
PV of cash for distribution, $m
  707
  670
  634
  597
  559
  520
  480
  439
  399
  358
  290
  256
  224
  193
  164
  137
  113
  92
  73
  58
  44
  33
  24
  18
  12
  8
  6
  4
  2
  1
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Fortune Brands Home & Security, Inc. is a holding company. The Company operates through four segments. The Cabinets segment includes custom, semi-custom and stock cabinetry for the kitchen, bath and other parts of the home under brand names, including Aristokraft, Mid-Continent, Diamond, Kitchen Classics, Kitchen Craft, Schrock, Omega, Homecrest, Thomasville, StarMark and Ultracraft. The Plumbing segment manufactures or assembles and sells faucets, bath furnishings, accessories and kitchen sinks and waste disposals under the Moen, Riobel, ROHL, Perrin & Rowe, and Waste King brands. The Doors segment includes residential fiberglass and steel entry door systems under the Therma-Tru brand name and urethane millwork product lines under the Fypon brand name. The Security segment includes locks, safety and security devices and electronic security products under the Master Lock brand name and fire resistant safes, security containers and commercial cabinets under the SentrySafe brand name.

FINANCIAL RATIOS  of  Fortune Brands Home & Security, Inc. (FBHS)

Valuation Ratios
P/E Ratio 20.8
Price to Sales 1.7
Price to Book 3.6
Price to Tangible Book
Price to Cash Flow 13.2
Price to Free Cash Flow 17.2
Growth Rates
Sales Growth Rate 8.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 15.5%
Cap. Spend. - 3 Yr. Gr. Rate 9%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 60.6%
Total Debt to Equity 60.6%
Interest Coverage 14
Management Effectiveness
Return On Assets 8.9%
Ret/ On Assets - 3 Yr. Avg. 6.8%
Return On Total Capital 11.1%
Ret/ On T. Cap. - 3 Yr. Avg. 8.7%
Return On Equity 17.2%
Return On Equity - 3 Yr. Avg. 12.3%
Asset Turnover 1
Profitability Ratios
Gross Margin 36.4%
Gross Margin - 3 Yr. Avg. 35%
EBITDA Margin 15%
EBITDA Margin - 3 Yr. Avg. 13.6%
Operating Margin 12.7%
Oper. Margin - 3 Yr. Avg. 11.2%
Pre-Tax Margin 11.7%
Pre-Tax Margin - 3 Yr. Avg. 10.5%
Net Profit Margin 8.3%
Net Profit Margin - 3 Yr. Avg. 6.4%
Effective Tax Rate 29.2%
Eff/ Tax Rate - 3 Yr. Avg. 30.9%
Payout Ratio 23.7%

FBHS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FBHS stock intrinsic value calculation we used $5485 million for the last fiscal year's total revenue generated by Fortune Brands Home & Security, Inc.. The default revenue input number comes from 0001 income statement of Fortune Brands Home & Security, Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our FBHS stock valuation model: a) initial revenue growth rate of 2.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 6.7%, whose default value for FBHS is calculated based on our internal credit rating of Fortune Brands Home & Security, Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Fortune Brands Home & Security, Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of FBHS stock the variable cost ratio is equal to 87%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for FBHS stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Fortune Brands Home & Security, Inc..

Corporate tax rate of 27% is the nominal tax rate for Fortune Brands Home & Security, Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the FBHS stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for FBHS are equal to 43.3%.

Life of production assets of 26.6 years is the average useful life of capital assets used in Fortune Brands Home & Security, Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for FBHS is equal to 8.3%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $2178.2 million for Fortune Brands Home & Security, Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 140.618 million for Fortune Brands Home & Security, Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Fortune Brands Home & Security, Inc. at the current share price and the inputted number of shares is $7.9 billion.

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