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I was looking through the list of the top % gainers on the NYSE this afternoon, figuring that for sure a new name would show up on the list with the strong gain in the market overall. Checking the fundamental data, I worked my way down to H. B. Fuller (FUL) which closed at $28.49, up $1.97 or 7.43% on the day. I do not own any shares nor any options on this stock. Let me share with you why I believe this stock deserves a place on the list.
I believe I first read about Fuller many years ago when it was written up in one of the early editions of 100 Best Stocks to Own in America by Gene Walden. Gene Walden influenced my thinking greatly with his "star system" of rating stocks based on several different factors; mostly, it was his observation about the consistency in financial results that was his measure of quality that influenced my thinking the most.
What exactly does this company do?
According to the Yahoo "Profile" on Fuller, the company
"...together with its subsidiaries, engages in the manufacture and marketing of adhesives and specialty chemical products worldwide. It operates in two segments, Global Adhesives and Full-Valu/Specialty. The Global Adhesives segment produces and supplies industrial and performance adhesives products for applications in various markets, including assembly; converting, including packaging, corrugated, tape and label, tissue and towel, and graphic arts; nonwoven, including disposable diapers, feminine care, and adult incontinence products; automotive; and footwear. The Full-Valu/Specialty segment produces and supplies specialty chemical product lines for ceramic tile applications, HVAC insulation, powder coatings applied to metal surfaces, specialty products and consulting for packaging solutions, consumer products, and products for the insulated glass market applications, as well as liquid paint sold through retail outlets in Central America."
How did Fuller do in the latest quarter reported?
On September 26, 2006, FUL reported 3rd quarter 2006 results. For the quarter ended September 2, 2006, net revenue grew 8.6% to $388.9 million over the same quarter last year. Net income increased over 50% to $24.2 million or $.40/share vs. $15.5 million or $.26/share in last year's same period. In the same announcement, the company went ahead and raised guidance for fiscal 2006 to $1.44 to $1.46, amounting to $.45 to $.47 for the fourth quarter. The company beat expectations for the quarter of revenue of $369 million.
What about longer-term results?
Looking at the Morningstar.com "5-Yr Restated" financials on H B Fuller, we can see that revenue, which dipped from $1.27 billion in 2001 to $1.256 billion in 2002, has subsequently steadily increased to $1.51 billion in 2005 and $1.54 billion in the trailing twelve months (TTM).
Earnings also dipped from $.79/share in 2002 to $.49/share, then rebounded to $1.06/share in 2005 and $1.39/share in the TTM.
Dividends came to $.21/share and were raised to $.22/share in 2003, $.23/share in 2004, $.24/share in 2005 and $.25/share in the TTM.
The company has kept its shares outstanding fairly stable with 56 million in 2001, growing to 58 million in 2005 and 60 million in the TTM. While shares did rise a bit under 10%, earnings during the period were up nearly 100% and revenue increased by 25%.
What about valuation?
Reviewing the Yahoo "Key Statistics" on H B Fuller, we can see that this is a mid cap stock with a market capitalization of $1.7 billion. The trailing p/e is a moderate 20.63, with a forward p/e of 17.48 (fye 03-Dec-07). Yahoo reports Fuller with a PEG of 1.99, a bit rich from my perspective.
According to the Fidelity.com eresearch website, Fuller has a Price/Sales (TTM) ratio of 1.02, with an industry average of 1.63. In terms of profitability, again according to Fidelity, Fuller has a Return on Equity (TTM) (ROE) of 13.01% just about at the industry average of 13.88%.
Some additional numbers from Yahoo: 59.63 million shares outstanding with 59.02 million that float. As of 12/12/06, there were 3.09 million shares out short representing 5.20% of the float or 7.6 trading days of volume. Using my arbitrary 3 day rule, this 7.6 trading day figure looks a bit heavy, and the move higher today might well have been putting a bit of pressure on the short-sellers.
The company, as noted, pays a dividend with a forward rate of $.25/share, yielding 0.90%. The last stock split was a 2:1 split paid out on August 7, 2006.
What does the chart look like?
Examining the "Point & Figure" chart on FUL from StockCharts.com, we can see that the stock, which seemed to trade sideways between 2002 and 2004, broke out to the upside in March 2005 at $14. Thje stock broke out once again in January 2006 to the $27 level, and appears once again to be challengin the old highs for a newer price now.
Summary: What do I think?
Let me summarize some of the things I have written above. First of all, Fuller, a stock that I do not own any shares, made a ncie move higher today. Most recently, the company reported a 3rd quarter earnings result which beat expectations on revenue and they also raised guidance for the subsequent quarter and full year 2006 results.
Valuation appears reasonable, although the PEG is a bit rich at just under 2.
The company is steadily growing revenue, earnings and increasing free cash flow. They pay a small dividend and have increased the dividend. Finally, there are a lot of shares out short which may well result in a 'short squeeze' if the upcoming quarter is strong. In addition, the chart looks good, if just a tad overextended. This is the kind of stock I would be buying today if I were buying anything; I am close to a buy signal with my Coach (COH) but will have to wait for some more trading to see if it is going to hit a sale point.
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