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Upward estimate revisions on the back of strong third-quarter 2012 results – including an earnings surprise of 16.0% as well as high earnings estimates for fiscal 2012 – have helped Fortune Brands Home & Security, Inc. (FBHS - Snapshot Report) achieve a Zacks #1 Rank (Strong Buy) on December 29.

Since the release of its third-quarter results on October 23, shares of this home and security products maker have increased about 7.0%. Moreover, considering its robust growth (year-to-date return of approximately 71.5%) and the history of beating quarterly earnings estimates (including an average beat of 63.1% over the trailing four quarters), it can stated that this stock offers an attractive investment opportunity.

The Rank Driver

An impressive record of beating the quarterly earnings expectations, a positive fiscal 2012 outlook and recovery in new construction as well as remodeling activities, are the major rank drivers for this stock.

On October 23, 2012, Fortune Brands Home & Security posted third quarter 2012 adjusted earnings of 29 cents per share, ahead the Zacks Consensus Estimate of 25 cents. The result also exceeded the year-ago quarters’ earnings of 20 cents. The upbeat results benefited from top-line growth and cost-saving actions.

Total revenue of $909.0 million was up 7.2% from the year-ago quarter, primarily driven by higher sales volume from an improving U.S. home products market, price increases and new product launches. The results beat the Zacks Consensus Estimate of $900.0 million.

All segments witnessed sales growth, with the Kitchen & Bath Cabinetry, Plumbing, Windows & Door and Security & Storage segments delivering 6.1%, 11.7%, 6.9% and 2.0% sales increases, respectively. The repair and remodeling business gained the most, riding on a market recovery, while consumer spending on expensive products like cabinets was still constrained.

Adjusted operating income expanded a whopping 34.5% to $72.9 million, driven by solid revenue growth and cost savings.

Following the upbeat third quarter and the improvement in the home products market, management raised its earnings per share outlook for 2012. The company now expects earnings per share to be between 86 cents and 88 cents, up from the prior forecast of 77 cents to 87 cents.

Earnings Estimate Revisions

Earnings estimate revisions of the company is exhibiting a positive trend for fiscal 2012 and 2013. The Zacks Consensus Estimate for fiscal 2012 increased 6.0% to 88 cents per share in the last 90 days, representing a year-over-year surge of 51.2%. Further, the Zacks Consensus Estimate for fiscal 2013 grew 1.8% to $1.15 per share for the same time frame, reflecting a year-over-year increase of 30.7%.

Valuation Looks Reasonable

Fortune Brands Home & Security currently trades at a forward price-to-earnings (P/E) multiple of 34.12x, reflecting a 99.4% premium to the peer group average of 17.11x. However, the stock looks attractive on a price-to-book (P/B) value basis. The P/B multiple for the stock is 2.06, reflecting a discount of 7.2% to the peer group average of 2.22.

About the Company

Based in Deerfield, Illinois, Fortune Brands Home & Security is a leading producer of home and security products. The company was spun off from Fortune Brands, a consumer brands company, in 2011. Fortune Brands Home & Security makes and sells kitchen and bath cabinetry, plumbing and accessories, advanced material windows products and entry door systems, security and storage products. Leading brands include Moen faucets, MasterBrand kitchen and bath cabinet, Simonton Windows and many more. The company has a market cap of $4.70 billion. One of the company’s peers Masco Corporation (MAS - Analyst Report) holds a Zacks #3 Rank, implying a short-term Hold rating.

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