Analyst Note| Brian Bernard, CFA, CPA |
Fortune Brands closed out a strong 2020 campaign that saw the narrow-moat-rated home and security products company increase revenue about 6% year over year, expand adjusted operating margin 80 basis points to 14.1%, and grow adjusted EPS 16% to $4.19. Like the overall United States housing market, residential repair and remodel spending was very strong in 2020 as more time spent at home caused households to reconsider living arrangements and upgrade home amenities. Management expects strong R&R demand to continue in 2021, with 5%-7% market growth. Given this backdrop, the firm expects to increase organic revenue 5.5%-7.5% in 2021 (12.5%-14.5% with the recently acquired Larson business), increase EPS 16%-21% and generate $600 million-$650 million of free cash flow.