H.B. Fuller Company - Value

There is no doubt that the world's manufacturing sector is operating at full throttle once again. H.B. Fuller Company (FUL) is expected to see double digit earnings growth in both 2011 and 2012 as its growth momentum continues. The company trades with attractive valuations, with a forward P/E of just 12.8.

This Zacks #1 Rank (strong buy) manufactures adhesives, sealants, paints and other specialty chemical products for customers in packaging, hygiene, paper converting, woodworking and construction in more than 100 countries.

The company is worldwide, operating in four geographic regions: North America, Latin America, Europe and Asia Pacific.

H.B. Fuller Beat By 10% in the Fourth Quarter

On Jan 11, H.B. Fuller reported its fourth quarter results and surprised by 4 cents per share. Earnings per share were 44 cents compared to the 40 cent consensus.

Revenue rose 5.5% to $360.2 million boosted by higher average selling prices, higher volume and acquisitions. Organic sales climbed 5.6% compared with last year.

One fly in the ointment, however, was higher raw material costs. With commodity prices soaring compared with 2009, margins are certainly being pressured. H.B. Fuller's gross profit margin fell 290 basis points versus the same time last year. It's something to watch.

Outlook for Fiscal 2011

While the company expects growth momentum that started in 2010 to continue into 2011, it did warn that raw material costs should increase moderately in the first half of the year. However, the company believes that pricing actions should still enhance margins.

Revenue is expected to increase 8% to 10% in 2011. Earnings per share are projected between $1.75 and $1.85 per share.

Zacks Consensus Estimates Rise

Not surprisingly, given the bullish guidance, analysts moved to raise their 2011 estimates. In the last month, 5 estimates moved higher in the last 30 days which pushed the Zacks Consensus up to $1.79 from $1.71. This is nearly right in the middle of the company's guidance range and is earnings growth of 12%.

For 2012, analysts expect further earnings growth of 12.5%.

H.B. Fuller Has the Magic Combination

With the relatively low P/E and the double digit earnings growth rates, H.B. Fuller has a PEG ratio of just 0.9, which makes it both a growth and a value stock. This is a very powerful combination.

It also has a value price-to-book ratio of 1.8, well under the value parameters of 3.0.

The company also rewards shareholders with a dividend, currently yielding 1.2%.

Shares have moved back and forth in a narrow trading range for much of the last year before this last earnings surprise gave them a boost in early January.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

 
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